[Title 34 CFR ]
[Code of Federal Regulations (annual edition) - July 1, 2017 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 34
Education
________________________
Part 680 to End
Title 35
[Reserved]
Revised as of July 1, 2017
Containing a codification of documents of general
applicability and future effect
As of July 1, 2017
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
[[Page ii]]
U.S. GOVERNMENT OFFICIAL EDITION NOTICE
Legal Status and Use of Seals and Logos
The seal of the National Archives and Records Administration
(NARA) authenticates the Code of Federal Regulations (CFR) as
the official codification of Federal regulations established
under the Federal Register Act. Under the provisions of 44
U.S.C. 1507, the contents of the CFR, a special edition of the
Federal Register, shall be judicially noticed. The CFR is
prima facie evidence of the original documents published in
the Federal Register (44 U.S.C. 1510).
It is prohibited to use NARA's official seal and the stylized Code
of Federal Regulations logo on any republication of this
material without the express, written permission of the
Archivist of the United States or the Archivist's designee.
Any person using NARA's official seals and logos in a manner
inconsistent with the provisions of 36 CFR part 1200 is
subject to the penalties specified in 18 U.S.C. 506, 701, and
1017.
Use of ISBN Prefix
This is the Official U.S. Government edition of this publication
and is herein identified to certify its authenticity. Use of
the 0-16 ISBN prefix is for U.S. Government Publishing Office
Official Editions only. The Superintendent of Documents of the
U.S. Government Publishing Office requests that any reprinted
edition clearly be labeled as a copy of the authentic work
with a new ISBN.
U . S . G O V E R N M E N T P U B L I S H I N G O F F I C E
------------------------------------------------------------------
U.S. Superintendent of Documents Washington, DC 20402-
0001
http://bookstore.gpo.gov
Phone: toll-free (866) 512-1800; DC area (202) 512-1800
[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 34:
SUBTITLE B--Regulations of the Offices of the Department
of Education (Continued)
Chapter VI--Office of Postsecondary Education,
Department of Education (Continued) 5
Chapter VII--Office of Educational Research and
Improvement, Department of Education [Reserved]
SUBTITLE C--Regulations Relating to Education
Chapter XI [Reserved]
Chapter XII--National Council on Disability 405
Title 35 [Reserved]
Findings Aids:
Table of CFR Titles and Chapters........................ 419
Alphabetical List of Agencies Appearing in the CFR...... 439
List of CFR Sections Affected........................... 449
[[Page iv]]
----------------------------
Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 34 CFR 682.100
refers to title 34, part
682, section 100.
----------------------------
[[Page v]]
EXPLANATION
The Code of Federal Regulations is a codification of the general and
permanent rules published in the Federal Register by the Executive
departments and agencies of the Federal Government. The Code is divided
into 50 titles which represent broad areas subject to Federal
regulation. Each title is divided into chapters which usually bear the
name of the issuing agency. Each chapter is further subdivided into
parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
volume.
LEGAL STATUS
The contents of the Federal Register are required to be judicially
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie
evidence of the text of the original documents (44 U.S.C. 1510).
HOW TO USE THE CODE OF FEDERAL REGULATIONS
The Code of Federal Regulations is kept up to date by the individual
issues of the Federal Register. These two publications must be used
together to determine the latest version of any given rule.
To determine whether a Code volume has been amended since its
revision date (in this case, July 1, 2017), consult the ``List of CFR
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative
List of Parts Affected,'' which appears in the Reader Aids section of
the daily Federal Register. These two lists will identify the Federal
Register page number of the latest amendment of any given rule.
EFFECTIVE AND EXPIRATION DATES
Each volume of the Code contains amendments published in the Federal
Register since the last revision of that volume of the Code. Source
citations for the regulations are referred to by volume number and page
number of the Federal Register and date of publication. Publication
dates and effective dates are usually not the same and care must be
exercised by the user in determining the actual effective date. In
instances where the effective date is beyond the cut-off date for the
Code a note has been inserted to reflect the future effective date. In
those instances where a regulation published in the Federal Register
states a date certain for expiration, an appropriate note will be
inserted following the text.
OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires
Federal agencies to display an OMB control number with their information
collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
amendments to existing regulations in the CFR. These OMB numbers are
placed as close as possible to the applicable recordkeeping or reporting
requirements.
PAST PROVISIONS OF THE CODE
Provisions of the Code that are no longer in force and effect as of
the revision date stated on the cover of each volume are not carried.
Code users may find the text of provisions in effect on any given date
in the past by using the appropriate List of CFR Sections Affected
(LSA). For the convenience of the reader, a ``List of CFR Sections
Affected'' is published at the end of each CFR volume. For changes to
the Code prior to the LSA listings at the end of the volume, consult
previous annual editions of the LSA. For changes to the Code prior to
2001, consult the List of CFR Sections Affected compilations, published
for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.
``[RESERVED]'' TERMINOLOGY
The term ``[Reserved]'' is used as a place holder within the Code of
Federal Regulations. An agency may add regulatory information at a
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used
editorially to indicate that a portion of the CFR was left vacant and
not accidentally dropped due to a printing or computer error.
INCORPORATION BY REFERENCE
What is incorporation by reference? Incorporation by reference was
established by statute and allows Federal agencies to meet the
requirement to publish regulations in the Federal Register by referring
to materials already published elsewhere. For an incorporation to be
valid, the Director of the Federal Register must approve it. The legal
effect of incorporation by reference is that the material is treated as
if it were published in full in the Federal Register (5 U.S.C. 552(a)).
This material, like any other properly issued regulation, has the force
of law.
What is a proper incorporation by reference? The Director of the
Federal Register will approve an incorporation by reference only when
the requirements of 1 CFR part 51 are met. Some of the elements on which
approval is based are:
(a) The incorporation will substantially reduce the volume of
material published in the Federal Register.
(b) The matter incorporated is in fact available to the extent
necessary to afford fairness and uniformity in the administrative
process.
(c) The incorporating document is drafted and submitted for
publication in accordance with 1 CFR part 51.
What if the material incorporated by reference cannot be found? If
you have any problem locating or obtaining a copy of material listed as
an approved incorporation by reference, please contact the agency that
issued the regulation containing that incorporation. If, after
contacting the agency, you find the material is not available, please
notify the Director of the Federal Register, National Archives and
Records Administration, 8601 Adelphi Road, College Park, MD 20740-6001,
or call 202-741-6010.
CFR INDEXES AND TABULAR GUIDES
A subject index to the Code of Federal Regulations is contained in a
separate volume, revised annually as of January 1, entitled CFR Index
and Finding Aids. This volume contains the Parallel Table of Authorities
and Rules. A list of CFR titles, chapters, subchapters, and parts and an
alphabetical list of agencies publishing in the CFR are also included in
this volume.
[[Page vii]]
An index to the text of ``Title 3--The President'' is carried within
that volume.
The Federal Register Index is issued monthly in cumulative form.
This index is based on a consolidation of the ``Contents'' entries in
the daily Federal Register.
A List of CFR Sections Affected (LSA) is published monthly, keyed to
the revision dates of the 50 CFR titles.
REPUBLICATION OF MATERIAL
There are no restrictions on the republication of material appearing
in the Code of Federal Regulations.
INQUIRIES
For a legal interpretation or explanation of any regulation in this
volume, contact the issuing agency. The issuing agency's name appears at
the top of odd-numbered pages.
For inquiries concerning CFR reference assistance, call 202-741-6000
or write to the Director, Office of the Federal Register, National
Archives and Records Administration, 8601 Adelphi Road, College Park, MD
20740-6001 or e-mail [email protected]
SALES
The Government Publishing Office (GPO) processes all sales and
distribution of the CFR. For payment by credit card, call toll-free,
866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or
fax your order to 202-512-2104, 24 hours a day. For payment by check,
write to: US Government Publishing Office - New Orders, P.O. Box 979050,
St. Louis, MO 63197-9000.
ELECTRONIC SERVICES
The full text of the Code of Federal Regulations, the LSA (List of
CFR Sections Affected), The United States Government Manual, the Federal
Register, Public Laws, Public Papers of the Presidents of the United
States, Compilation of Presidential Documents and the Privacy Act
Compilation are available in electronic format via www.ofr.gov. For more
information, contact the GPO Customer Contact Center, U.S. Government
Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-
mail, [email protected]
The Office of the Federal Register also offers a free service on the
National Archives and Records Administration's (NARA) World Wide Web
site for public law numbers, Federal Register finding aids, and related
information. Connect to NARA's web site at www.archives.gov/federal-
register.
The e-CFR is a regularly updated, unofficial editorial compilation
of CFR material and Federal Register amendments, produced by the Office
of the Federal Register and the Government Publishing Office. It is
available at www.ecfr.gov.
Oliver A. Potts,
Director,
Office of the Federal Register.
July 1, 2017.
[[Page ix]]
THIS TITLE
Title 34--Education is composed of four volumes. The parts in these
volumes are arranged in the following order: Parts 1-299, parts 300-399,
parts 400-679, and part 680 to end. The contents of these volumes
represent all regulations codified under this title of the CFR as of
July 1, 2017.
For this volume, Robert J. Sheehan, III was Chief Editor. The Code
of Federal Regulations publication program is under the direction of
John Hyrum Martinez, assisted by Stephen J. Frattini.
[[Page 1]]
TITLE 34--EDUCATION
(This book contains part 680 to End)
--------------------------------------------------------------------
SUBTITLE B--Regulations of the Offices of the Department of Education
(Continued)
Part
chapter VI--Office of Postsecondary Education, Department of
Education (Continued)..................................... 682
chapter VII--Office of Educational Research and Improvement, Department
of Education [Reserved]
SUBTITLE C--Regulations Relating to Education
chapter XI--National Institute for Literacy [Reserved]
chapter XII--National Council on Disability................. 1200
[[Page 3]]
Subtitle B--Regulations of the Offices of the Department of Education
(Continued)
[[Page 5]]
CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION
(CONTINUED)
--------------------------------------------------------------------
Part Page
680-681
[Reserved]
682 Federal family education loan (FFEL) program 7
685 William D. Ford Federal direct loan program. 196
686 Teacher education assistance for college and
higher education (TEACH) grant program.. 309
690 Federal Pell grant program.................. 330
691 Academic competitiveness grant (ACG) and
national science and mathematics access
to retain talent grant (national smart
grant) programs......................... 345
692 Leveraging educational assistance
partnership program..................... 364
693
[Reserved]
694 Gaining Early Awareness and Readiness for
Undergraduate Programs (GEAR UP)........ 390
695-699
[Reserved]
[[Page 7]]
PARTS 680 681 [RESERVED]
PART 682_FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
--Table of Contents
Subpart A_Purpose and Scope
Sec.
682.100 The Federal Family Education Loan programs.
682.101 Participation in the FFEL programs.
682.102 Repaying a loan.
682.103 Applicability of subparts.
Subpart B_General Provisions
682.200 Definitions.
682.201 Eligible borrowers.
682.202 Permissible charges by lenders to borrowers.
682.203 Responsible parties.
682.204 Maximum loan amounts.
682.205 Disclosure requirements for lenders.
682.206-682.207 [Reserved]
682.208 Due diligence in servicing a loan.
682.209 Repayment of a loan.
682.210 Deferment.
682.211 Forbearance.
682.212 Prohibited transactions.
682.213 Prohibition against the use of the Rule of 78s.
682.214 [Reserved]
682.215 Income-based repayment plan.
682.216 Teacher loan forgiveness program.
Subpart C_Federal Payments of Interest and Special Allowance
682.300 Payment of interest benefits on Stafford and Consolidation
loans.
682.301 Eligibility of borrowers for interest benefits on Stafford and
Consolidation loans.
682.302 Payment of special allowance on FFEL loans.
682.303 [Reserved]
682.304 Methods for computing interest benefits and special allowance.
682.305 Procedures for payment of interest benefits and special
allowance and collection of origination and loan fees.
Subpart D_Administration of the Federal Family Education Loan Programs
by a Guaranty Agency
682.400 Agreements between a guaranty agency and the Secretary.
682.401 Basic program agreement.
682.402 Death, disability, closed school, false certification, unpaid
refunds, and bankruptcy payments.
682.403 [Reserved]
682.404 Federal reinsurance agreement.
682.405 Loan rehabilitation agreement.
682.406 Conditions for claim payments from the Federal Fund and for
reinsurance coverage.
682.407 Discharge of student loan indebtedness for survivors of victims
of the September 11, 2001, attacks.
682.408 [Reserved]
682.409 Mandatory assignment by guaranty agencies of defaulted loans to
the Secretary.
682.410 Fiscal, administrative, and enforcement requirements.
682.411 Lender due diligence in collecting guaranty agency loans.
682.412 Consequences of the failure of a borrower or student to
establish eligibility.
682.413 Remedial actions.
682.414 Records, reports, and inspection requirements for guaranty
agency programs.
682.415 [Reserved]
682.416 Requirements for third-party servicers and lenders contracting
with third-party servicers.
682.417 Determination of Federal funds or assets to be returned.
682.418 [Reserved]
682.419 Guaranty agency Federal Fund.
682.420-682.422 [Reserved]
682.423 Guaranty agency Operating Fund.
Subpart E [Reserved]
Subpart F_Requirements, Standards, and Payments for Schools That
Participated in the FFEL Program
682.600-682.602 [Reserved]
682.603 Certification by a school that participated in the FFEL Program
in connection with a loan application.
682.604 Required exit counseling for borrowers.
682.605 Determining the date of a student's withdrawal.
682.606 [Reserved]
682.607 Payment of a refund or a return of title IV, HEA program funds
to a lender upon a student's withdrawal.
682.608 [Reserved]
682.609 Remedial actions.
682.610 Administrative and fiscal requirements for schools that
participated in the FFEL Program.
682.611 [Reserved]
Subpart G_Limitation, Suspension, or Termination of Lender or Third-
Party Servicer Eligibility and Disqualification of Lenders
682.700 Purpose and scope.
682.701 Definitions of terms used in this subpart.
682.702 Effect on participation.
682.703 Informal compliance procedure.
682.704 Emergency action.
[[Page 8]]
682.705 Suspension proceedings.
682.706 Limitation or termination proceedings.
682.707 Appeals in a limitation or termination proceeding.
682.708 Evidence of mailing and receipt dates.
682.709 Reimbursements, refunds, and offsets.
682.710 Removal of limitation.
682.711 Reinstatement after termination.
682.712 Disqualification review of limitation, suspension, and
termination actions taken by guarantee agencies against
lenders.
682.713 [Reserved]
Subpart H [Reserved]
Appendices A-C to Part 682 [Reserved]
Appendix D to Part 682--Policy for Waiving the Secretary's Right To
Recover or Refuse To Pay Interest Benefits, Special Allowance,
and Reinsurance on Stafford, Plus, Supplemental Loans for
Students, and Consolidation Program Loans Involving Lenders'
Violations of Federal Regulations Pertaining to Due Diligence
in Collection or Timely Filing of Claims [Bulletin 88-G-138]
Authority: 20 U.S.C. 1071-1087-4, unless otherwise noted.
Source: 57 FR 60323, Dec. 18, 1992, unless otherwise noted.
Subpart A_Purpose and Scope
Sec. 682.100 The Federal Family Education Loan programs.
(a) This part governs the following four programs collectively
referred to in these regulations as ``the Federal Family Education Loan
(FFEL) programs,'' in which lenders used their own funds prior to July
1, 2010, to make loans to enable a student or his or her parents to pay
the costs of the student's attendance at postsecondary schools.
(1) The Federal Stafford Loan (Stafford) Program, which encouraged
making loans to undergraduate, graduate, and professional students.
(2) The Federal Supplemental Loans for Students (SLS) Program, as in
effect for periods of enrollment that began prior to July 1, 1994, which
encouraged making loans to graduate, professional, independent
undergraduate, and certain dependent undergraduate students.
(3) The Federal PLUS (PLUS) Program, which encouraged making loans
to parents of dependent undergraduate students. Before October 17, 1986,
the PLUS Program also provided for making loans to graduate,
professional, and independent undergraduate students. Before July 1,
1993, the PLUS Program also provided for making loans to parents of
dependent graduate students. The PLUS Program also provided for making
loans to graduate and professional students on or after July 1, 2006 and
prior to July 1, 2010.
(4) The Federal Consolidation Loan Program (Consolidation Loan
Program), which encouraged making loans to borrowers for the purpose of
consolidating loans: under the Federal Insured Student Loan (FISL),
Stafford loan, SLS, ALAS (as in effect before October 17, 1986), PLUS,
Perkins Loan programs, the Health Professions Student Loan (HPSL)
including Loans for Disadvantaged Students (LDS) Program authorized by
subpart II of part A of Title VII of the Public Health Services Act,
Health Education Assistance Loans (HEAL) authorized by subpart I of Part
A of Title VII of the Health Services Act, Nursing Student Loan Program
loans authorized by subpart II of part B of title VIII of the Public
Health Service Act, and existing loans obtained under the Consolidation
Loan Program, and William D. Ford Direct Loan (Direct Loan) program
loans, if the application for the Consolidation loan was received on or
after November 13, 1997 and prior to July 1, 2010.
(b)(1) Except for the loans guaranteed directly by the Secretary
described in paragraph (b)(2) of this section, a guaranty agency
guarantees a lender against losses due to default by the borrower on a
FFEL loan. If the guaranty agency meets certain Federal requirements,
the guaranty agency is reimbursed by the Secretary for all or part of
the amount of default claims it pays to lenders.
(2)(i) The Secretary guarantees lenders against losses--
(A) Within the Stafford Loan Program, on loans made under Federal
Insured Student Loan (FISL) Program;
(B) Within the PLUS Program, on loans made under the Federal PLUS
Program;
[[Page 9]]
(C) Within the SLS Program, on loans made under the Federal SLS
Program as in effect for periods of enrollment that began prior to July
1, 1994; and
(D) Within the Consolidation Loan Program, on loans made under the
Federal Consolidation Loan Program.
(ii) The loan programs listed in paragraph (b)(2)(i) of this section
collectively are referred to in these regulations as the ``Federal
Guaranteed Student Loan (GSL) programs.''
(iii) The Federal GSL programs were authorized to operate in States
not served by a guaranty agency program. In addition, the FISL and
Federal SLS (as in effect for periods of enrollment that began prior to
July 1, 1994) programs were authorized, under limited circumstances, to
operate in States in which a guaranty agency program did not serve all
eligible students.
(Authority: 20 U.S.C. 1701 to 1087-2)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 33348, June 28, 1994;
59 FR 61215, Nov. 29, 1994; 64 FR 18974, 18975, Apr. 16, 1999; 64 FR
58952, Nov. 1, 1999; 66 FR 34762, June 29, 2001; 71 FR 45698, Aug. 9,
2006; 78 FR 65806, Nov. 1, 2013]
Sec. 682.101 Participation in the FFEL programs.
The following entities and persons participate in the FFEL programs:
(a) Eligible banks, savings and loan associations, credit unions,
pension funds, insurance companies, schools, and State and private
nonprofit agencies made loans prior to July 1, 2010.
(b) Institutions of higher education, including most colleges,
universities, graduate and professional schools, and many vocational,
technical schools participated as schools, enabling an eligible student
or his or her parents to obtain a loan to pay for the student's cost of
education.
(c) Students who met certain requirements, including enrollment at a
participating school, borrowed under the Stafford Loan Program prior to
July 1, 2010 and, for periods of enrollment that began prior to July 1,
1994, the SLS program. Parents of eligible dependent undergraduate
students borrowed under the PLUS Program prior to July 1, 2010.
Borrowers with outstanding Stafford, SLS, FISL, Perkins, HPSL, HEAL,
ALAS, PLUS, or Nursing Student Loan Program loans borrowed under the
Consolidation Loan Program prior to July 1, 2010. The PLUS Program also
provided for making loans to graduate and professional students on or
after July 1, 2006 and prior to July 1, 2010.
(Authority: 20 U.S.C. 1071 to 1087-2)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 61215, Nov. 29, 1994;
64 FR 18975, Apr. 16, 1999; 66 FR 34762, June 29, 2001; 71 FR 45698,
Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006; 78 FR 65806, Nov. 1, 2013]
Sec. 682.102 Repaying a loan.
(a) General. Generally, the borrower is obligated to repay the full
amount of the loan, late fees, collection costs chargeable to the
borrower, and any interest not payable by the Secretary. The borrower's
obligation to repay is cancelled if the borrower dies, becomes totally
and permanently disabled, or has that obligation discharged in
bankruptcy. A parent borrower's obligation to repay a PLUS loan is
cancelled if the student, on whose behalf the parent borrowed, dies. The
borrower's or student's obligation to repay all or a portion of his or
her loan may be cancelled if the student is unable to complete his or
her program of study because the school closed or the borrower's or
student's eligibility to borrow was falsely certified by the school. The
obligation to repay all or a portion of a loan may be forgiven for
Stafford Loan borrowers who enter certain areas of the teaching
profession.
(b) Stafford loan repayment. In the case of a subsidized Stafford
loan, a borrower is not required to make any principal payments during
the time the borrower is in school. The Secretary pays the interest on
the borrower's behalf during the time the borrower is in school. When
the borrower ceases to be enrolled on at least a half-time basis, a
grace period begins during which no principal payments are required, and
the Secretary continues to make interest payments on the borrower's
behalf. In the case of an unsubsidized Stafford loan, the borrower is
responsible for interest during these periods. At the end
[[Page 10]]
of the grace period, the repayment period begins. During the repayment
period, for the subsidized and unsubsidized Stafford loan, the borrower
pays both the principal and the interest accruing on the loan.
(c) SLS loan repayment. Generally, the repayment period for an SLS
loan begins immediately on the day of the last disbursement of the loan
proceeds by the lender. The first payment of principal and interest on
an SLS loan is due from the borrower within 60 days after the loan is
fully disbursed unless a borrower who is also a Stafford loan borrower,
but who has not yet entered repayment on the Stafford loan, requests
that commencement of repayment on the SLS loan be deferred until the
borrower's grace period on the Stafford loan expires.
(d) PLUS loan repayment. Generally, the repayment period for a PLUS
loan begins on the day the loan is fully disbursed by the lender. The
first payment of principal and interest on a PLUS loan is due from the
borrower within 60 days after the loan is fully disbursed.
(e) Consolidation loan repayment. Generally, the repayment period
for a Consolidation loan begins on the day the loan is disbursed. The
first payment of principal and interest on a Consolidation loan is due
from the borrower within 60 days after the borrower's liability on all
loans being consolidated has been discharged.
(f) Deferment of repayment. Repayment of principal on a FFEL program
loan may be deferred under the circumstances described in Sec. 682.210.
(g) Default. If a borrower defaults on a loan, the guarantor
reimburses the lender for the amount of its loss. The guarantor then
collects the amount owed from the borrower.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1071 to 1087-2)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25744, May 17, 1994; 59
FR 33348, June 28, 1994; 64 FR 18975, Apr. 16, 1999; 64 FR 58952, Nov.
1, 1999; 68 FR 75428, Dec. 31, 2003; 71 FR 45698, Aug. 9, 2006; 78 FR
65806, Nov. 1, 2013]
Sec. 682.103 Applicability of subparts.
(a) Subpart B of this part contains general provisions that are
applicable to all participants in the FFEL and Federal GSL programs.
(b) The administration of the FFEL programs by a guaranty agency is
subject to subparts C, D, F, and G of this part.
(c) The Federal FFEL and Federal GSL programs are subject to
subparts C, F, and G of this part.
(d) Certain requirements applicable to schools under all the FFEL
and Federal GSL programs are set forth in subpart F of this part.
(Authority: 20 U.S.C. 1071 to 1087-2)
[57 FR 60323, Dec. 18, 1992, as amended at 64 FR 18975, Apr. 16, 1999;
64 FR 58952, Nov. 1, 1999; 78 FR 65806, Nov. 1, 2013]
Subpart B_General Provisions
Sec. 682.200 Definitions.
(a)(1) The definitions of the following terms used in this part are
set forth in the Student Assistance General Provisions, 34 CFR part 668:
Academic year
Campus-based programs
Dependent student
Eligible program
Eligible student
Enrolled
Expected family contribution (EFC)
Federal Consolidation Loan Program
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal Work-Study (FWS) Program
Full-time student
Half-time student
Independent student
National of the United States (Referred to as U.S. Citizen or National
in 34 CFR 668.2)
Payment period
Teacher Education Assistance for College and Higher Education (TEACH)
Grant Program
TEACH Grant
Undergraduate student
(2) The following definitions are set forth in the regulations for
Institutional Eligibility under the Higher Education Act of 1965, as
amended, 34 CFR part 600:
Accredited
Clock hour
Correspondence course
Credit hour
Educational program
Federal Family Education Loan Program (formerly known as the Guaranteed
Student Loan (GSL) Program)
[[Page 11]]
Foreign institution
Institution of higher education (Sec. 600.4)
Nationally recognized accrediting agency
Postsecondary Vocational Institution
Preaccredited
Secretary
State
(3) The definition for cost of attendance is set forth in section
472 of the Act, as amended.
(b) The following definitions also apply to this part:
Act. The Higher Education Act of 1965, as amended, 20 U.S.C. 1071 et
seq.
Actual interest rate. The annual interest rate a lender charges on a
loan, which may be equal to or less than the applicable interest rate on
that loan.
Applicable interest rate. The maximum annual interest rate that a
lender may charge under the Act on a loan.
Authority. Any private non-profit or public entity that may issue
tax-exempt obligations to obtain funds to be used for the purchase of
FFEL loans. The term ``Authority'' also includes any agency, including a
State postsecondary institution or any other instrumentality of a State
or local governmental unit, regardless of the designation or primary
purpose of that agency, that may issue tax-exempt obligations, any party
authorized to issue those obligations on behalf of a governmental
agency, and any non-profit organization authorized by law to issue tax-
exempt obligations.
Borrower. An individual to whom a FFEL Program loan was made.
Co-Maker: One of two married individuals who jointly borrow a
Consolidation loan, each of whom are eligible and who are jointly and
severally liable for repayment of the loan. The term co-maker also
includes one of two parents who are joint borrowers as previously
authorized in the PLUS Program.
Default. The failure of a borrower and endorser, if any, or joint
borrowers on a PLUS or Consolidation loan, to make an installment
payment when due, or to meet other terms of the promissory note, the
Act, or regulations as applicable, if the Secretary or guaranty agency
finds it reasonable to conclude that the borrower and endorser, if any,
no longer intend to honor the obligation to repay, provided that this
failure persists for--
(1) 270 days for a loan repayable in monthly installments; or
(2) 330 days for a loan repayable in less frequent installments.
Disbursement. The transfer of loan proceeds by a lender to a holder,
in the case of a Consolidation loan, or to a borrower, a school, or an
escrow agent by issuance of an individual check, a master check or by
electronic funds transfer that may represent loan amounts for borrowers.
Disposable income. That part of an individual's compensation from an
employer and other income from any source, including spousal income,
that remains after the deduction of any amounts required by law to be
withheld, or any child support or alimony payments that are made under a
court order or legally enforceable written agreement. Amounts required
by law to be withheld include, but are not limited, to Federal, State,
and local taxes, Social Security contributions, and wage garnishment
payments.
Endorser. An individual who signs a promissory note and agrees to
repay the loan in the event that the borrower does not.
Escrow agent. Any guaranty agency or other eligible lender that
receives the proceeds of a FFEL program loan as an agent of an eligible
lender for the purpose of transmitting those proceeds to the borrower or
the borrower's school.
Estimated financial assistance. (1) The estimated amount of
assistance for a period of enrollment that a student (or a parent on
behalf of a student) will receive from Federal, State, institutional, or
other sources, such as, scholarships, grants, the net earnings from
need-based employment, or loans, including but not limited to--
(i) Except as provided in paragraph (2)(iii) of this definition,
national service education awards or post-service benefits under title I
of the National and Community Service Act of 1990 (AmeriCorps);
(ii) Except as provided in paragraph (2)(vii) of this definition,
veterans' education benefits;
(iii) Any educational benefits paid because of enrollment in a
postsecondary education institution, or to
[[Page 12]]
cover postsecondary education expenses;
(iv) Fellowships or assistantships, except non-need-based employment
portions of such awards;
(v) Insurance programs for the student's education; and
(vi) The estimated amount of other Federal student financial aid,
including but not limited to a Federal Pell Grant, campus-based aid, and
the gross amount (including fees) of subsidized and unsubsidized Federal
Stafford Loans or subsidized and unsubsidized Federal Direct Stafford/
Ford Loans, and Federal PLUS or Federal Direct PLUS Loans.
(2) Estimated financial assistance does not include--
(i) Those amounts used to replace the expected family contribution,
including the amounts of any TEACH Grant, unsubsidized Federal Stafford
or Federal Direct Stafford/Ford Loans, Federal PLUS or Federal Direct
PLUS Loans, and non-federal non-need-based loans, including private,
state-sponsored, and institutional loans. However, if the sum of the
amounts received that are being used to replace the student's EFC exceed
the EFC, the excess amount must be treated as estimated financial
assistance;
(ii) Federal Perkins loan and Federal Work-Study funds that the
student has declined;
(iii) For the purpose of determining eligibility for a subsidized
Stafford loan, national service education awards or post-service
benefits under title I of the National and Community Service Act of 1990
(AmeriCorps);
(iv) Any portion of the estimated financial assistance described in
paragraph (1) of this definition that is included in the calculation of
the student's expected family contribution (EFC);
(v) Non-need-based employment earnings;
(vi) Assistance not received under a title IV, HEA program, if that
assistance is designated to offset all or a portion of a specific amount
of the cost of attendance and that component is excluded from the cost
of attendance as well. If that assistance is excluded from either
estimated financial assistance or cost of attendance, it must be
excluded from both;
(vii) Federal veterans' education benefits paid under--
(A) Chapter 103 of title 10, United States Code (Senior Reserve
Officers' Training Corps);
(B) Chapter 106A of title 10, United States Code (Educational
Assistance for Persons Enlisting for Active Duty);
(C) Chapter 1606 of title 10, United States Code (Selected Reserve
Educational Assistance Program);
(D) Chapter 1607 of title 10, United States Code (Educational
Assistance Program for Reserve Component Members Supporting Contingency
Operations and Certain Other Operations);
(E) Chapter 30 of title 38, United States Code (All-Volunteer Force
Educational Assistance Program, also known as the ``Montgomery GI Bill--
active duty'');
(F) Chapter 31 of title 38, United States Code (Training and
Rehabilitation for Veterans with Service-Connected Disabilities);
(G) Chapter 32 of title 38, United States Code (Post-Vietnam Era
Veterans' Educational Assistance Program);
(H) Chapter 33 of title 38, United States Code (Post 9/11
Educational Assistance);
(I) Chapter 35 of title 38, United States Code (Survivors' and
Dependents' Educational Assistance Program);
(J) Section 903 of the Department of Defense Authorization Act, 1981
(10 U.S.C. 2141 note) (Educational Assistance Pilot Program);
(K) Section 156(b) of the ``Joint Resolution making further
continuing appropriations and providing for productive employment for
the fiscal year 1983, and for other purposes'' (42 U.S.C. 402 note)
(Restored Entitlement Program for Survivors, also known as ``Quayle
benefits'');
(L) The provisions of chapter 3 of title 37, United States Code,
related to subsistence allowances for members of the Reserve Officers
Training Corps; and
(M) Any program that the Secretary may determine is covered by
section 480(c)(2) of the HEA; and
[[Page 13]]
(viii) Iraq and Afghanistan Service Grants made under section 420R
of the HEA.
Federal GSL programs. The Federal Insured Student Loan Program, the
Federal Supplemental Loans for Students Program, the Federal PLUS
Program, and the Federal Consolidation Loan Program.
Federal Insured Student Loan Program. The loan program authorized by
title IV-B of the Act under which the Secretary directly insures lenders
against losses.
Grace period. The period that begins on the day after a Stafford
loan borrower ceases to be enrolled as at least a half-time student at
an institution of higher education and ends on the day before the
repayment period begins. See also ``Post-deferment grace period.'' For
an SLS borrower who also has a Federal Stafford loan on which the
borrower has not yet entered repayment, the grace period is an
equivalent period after the borrower ceases to be enrolled as at least a
half-time student at an institution of higher education.
Guaranty agency. A State or private nonprofit organization that has
an agreement with the Secretary under which it will administer a loan
guarantee program under the Act.
Holder. An eligible lender owning an FFEL Program loan including a
Federal or State agency or an organization or corporation acting on
behalf of such an agency and acting as a conservator, liquidator, or
receiver of an eligible lender.
Legal guardian. An individual appointed by a court to be a
``guardian'' of a person and specifically required by the court to use
his or her financial resources for the support of that person.
Lender. (1) The term ``eligible lender'' is defined in section
435(d) of the Act, and in paragraphs (2)-(5) of this definition.
(2) With respect to a National or State chartered bank, a mutual
savings bank, a savings and loan association, a stock savings bank, or a
credit union--
(i) The phrase ``subject to examination and supervision'' in section
435(d) of the Act means ``subject to examination and supervision in its
capacity as a lender'';
(ii) The phrase ``does not have as its primary consumer credit
function the making or holding of loans made to students under this
part'' in section 435(d) of the Act means that the lender does not, or
in the case of a bank holding company, the company's wholly-owned
subsidiaries as a group do not at any time, hold FFEL Program loans that
total more than one-half of the lender's or subsidiaries' combined
consumer credit loan portfolio, including home mortgages held by the
lender or its subsidiaries. For purposes of this paragraph, loans held
in trust by a trustee lender are not considered part of the trustee
lender's consumer credit function.
(3) A bank that is subject to examination and supervision by an
agency of the United States, making student loans as a trustee, may be
an eligible lender if it makes loans under an express trust, operated as
a lender in the FFEL programs prior to January 1, 1975, and met the
requirements of this paragraph prior to July 23, 1992.
(4) The corporate parent or other owner of a school that qualifies
as an eligible lender under section 435(d) of the Act is not an eligible
lender unless the corporate parent or owner itself qualifies as an
eligible lender under section 435(d) of the Act.
(5)(i) The term eligible lender does not include any lender that the
Secretary determines, after notice and opportunity for a hearing before
a designated Department official, has, directly or through an agent or
contractor--
(A) Except as provided in paragraph (5)(ii) of this definition,
offered, directly or indirectly, points, premiums, payments (including
payments for referrals, finder fees or processing fees), or other
inducements to any school, any employee of a school, or any individual
or entity in order to secure applications for FFEL loans or FFEL loan
volume. This includes but is not limited to--
(1) Payments or offerings of other benefits, including prizes or
additional financial aid funds, to a prospective borrower or to a school
or school employee in exchange for applying for or accepting a FFEL loan
from the lender;
[[Page 14]]
(2) Payments or other benefits, including payments of stock or other
securities, tuition payments or reimbursements, to a school, a school
employee, any school-affiliated organization, or to any other individual
in exchange for FFEL loan applications, application referrals, or a
specified volume or dollar amount of loans made, or placement on a
school's list of recommended or suggested lenders;
(3) Payments or other benefits provided to a student at a school who
acts as the lender's representative to secure FFEL loan applications
from individual prospective borrowers, unless the student is also
employed by the lender for other purposes and discloses that employment
to school administrators and to prospective borrowers;
(4) Payments or other benefits to a loan solicitor or sales
representative of a lender who visits schools to solicit individual
prospective borrowers to apply for FFEL loans from the lender;
(5) Payment to another lender or any other party, including a
school, a school employee, or a school-affiliated organization or its
employees, of referral fees, finder fees or processing fees, except
those processing fees necessary to comply with Federal or State law;
(6) Compensation to an employee of a school's financial aid office
or other employee who has responsibilities with respect to student loans
or other financial aid provided by the school or compensation to a
school-affiliated organization or its employees, to serve on a lender's
advisory board, commission or other group established by the lender,
except that the lender may reimburse the employee for reasonable
expenses incurred in providing the service;
(7) Payment of conference or training registration, travel, and
lodging costs for an employee of a school or school-affiliated
organization;
(8) Payment of entertainment expenses, including expenses for
private hospitality suites, tickets to shows or sporting events, meals,
alcoholic beverages, and any lodging, rental, transportation, and other
gratuities related to lender-sponsored activities for employees of a
school or a school-affiliated organization;
(9) Philanthropic activities, including providing scholarships,
grants, restricted gifts, or financial contributions in exchange for
FFEL loan applications or application referrals, or a specified volume
or dollar amount of FFEL loans made, or placement on a school's list of
recommended or suggested lenders;
(10) Performance of, or payment to another third party to perform,
any school function required under title IV, except that the lender may
perform entrance counseling and, as provided in Sec. 682.604(a), exit
counseling, and may provide services to participating foreign schools at
the direction of the Secretary, as a third-party servicer; and
(11) Any type of consulting arrangement or other contract with an
employee of a financial aid office at a school, or an employee of a
school who otherwise has responsibilities with respect to student loans
or other financial aid provided by the school under which the employee
would provide services to the lender.
(B) Conducted unsolicited mailings, by postal or electronic means,
of student loan application forms to students enrolled in secondary
schools or postsecondary institutions or to family members of such
students, except to a student or borrower who previously has received a
FFEL loan from the lender;
(C) Offered, directly or indirectly, a FFEL loan to a prospective
borrower to induce the purchase of a policy of insurance or other
product or service by the borrower or other person; or
(D) Engaged in fraudulent or misleading advertising with respect to
its FFEL loan activities.
(ii) Notwithstanding paragraph (5)(i) of this definition, a lender,
in carrying out its role in the FFEL program and in attempting to
provide better service, may provide--
(A) Technical assistance to a school that is comparable to the kinds
of technical assistance provided to a school by the Secretary under the
Direct Loan program, as identified by the Secretary in a public
announcement, such as a notice in the Federal Register;
(B) Support of and participation in a school's or a guaranty
agency's student aid and financial literacy-related outreach activities,
including in-person
[[Page 15]]
entrance and exit counseling, as long as the name of the entity that
developed and paid for any materials is provided to the participants and
the lender does not promote its student loan or other products;
(C) Meals, refreshments, and receptions that are reasonable in cost
and scheduled in conjunction with training, meeting, or conference
events if those meals, refreshments, or receptions are open to all
training, meeting, or conference attendees;
(D) Toll-free telephone numbers for use by schools or others to
obtain information about FFEL loans and free data transmission service
for use by schools to electronically submit applicant loan processing
information or student status confirmation data;
(E) A reduced origination fee in accordance with Sec. 682.202(c);
(F) A reduced interest rate as provided under the Act;
(G) Payment of Federal default fees in accordance with the Act;
(H) Purchase of a loan made by another lender at a premium;
(I) Other benefits to a borrower under a repayment incentive program
that requires, at a minimum, one or more scheduled payments to receive
or retain the benefit or under a loan forgiveness program for public
service or other targeted purposes approved by the Secretary, provided
these benefits are not marketed to secure loan applications or loan
guarantees;
(J) Items of nominal value to schools, school-affiliated
organizations, and borrowers that are offered as a form of generalized
marketing or advertising, or to create good will; and
(K) Other services as identified and approved by the Secretary
through a public announcement, such as a notice in the Federal Register.
(iii) For the purposes of this paragraph (5)--
(A) The term ``school-affiliated organization'' is defined in
Sec. 682.200.
(B) The term ``applications'' includes the Free Application for
Federal Student Aid (FAFSA), FFEL loan master promissory notes, and FFEL
Consolidation loan application and promissory notes.
(C) The term ``other benefits'' includes, but is not limited to,
preferential rates for or access to the lender's other financial
products, information technology equipment, or non-loan processing or
non-financial aid-related computer software at below market rental or
purchase cost, and printing and distribution of college catalogs and
other materials at reduced or no cost.
(6) The term eligible lender does not include any lender that--
(i) Is debarred or suspended, or any of whose principals or
affiliates (as those terms are defined in 2 CFR parts 180 and 3485) is
debarred or suspended under Executive Order (E.O.) 12549 (3 CFR, 1986
Comp., p. 189) or the Federal Acquisition Regulation (FAR), 48 CFR part
9, subpart 9.4;
(ii) Is an affiliate, as defined in 2 CFR parts 180 and 3485, of any
person who is debarred or suspended under E.O. 12549 (3 CFR, 1986 Comp.,
p. 189) or the FAR, 48 CFR part 9, subpart 9.4; or
(iii) Employs a person who is debarred or suspended under E.O. 12549
(3 CFR, 1986 Comp., p. 189) or the FAR, 48 CFR part 9, subpart 9.4, in a
capacity that involves the administration or receipt of FFEL Program
funds.
(7) An eligible lender may not make or hold a loan as trustee for a
school, or for a school-affiliated organization as defined in this
section, unless on or before September 30, 2006--
(i) The eligible lender was serving as trustee for the school or
school-affiliated organization under a contract entered into and
continuing in effect as of that date; and
(ii) The eligible lender held at least one loan in trust on behalf
of the school or school-affiliated organization on that date.
(8) As of January 1, 2007, and for loans first disbursed on or after
that date under a trustee arrangement, an eligible lender operating as a
trustee under a contract entered into on or before September 30, 2006,
and which continues in effect with a school or a school-affiliated
organization--
(i) Must not--
(A) Make a loan to any undergraduate student;
(B) Make a loan other than a Federal Stafford loan to a graduate or
professional student; or
[[Page 16]]
(C) Make a loan to a borrower who is not enrolled at that school;
(ii) Must offer loans that carry an origination fee or an interest
rate, or both, that are less than the fee or rate authorized under the
provisions of the Act; and
(iii) Must, for any fiscal year beginning on or after July 1, 2006
in which the school engages in activities as an eligible lender, submit
an annual compliance audit that satisfies the following requirements:
(A) With regard to a school that is a governmental entity or a
nonprofit organization, the audit must be conducted in accordance with
Sec. 682.305(c)(2)(v) and chapter 75 of title 31, United States Code,
and in addition, during years when the student financial aid cluster (as
defined in Office of Management and Budget Circular A-133, Appendix B,
Compliance Supplement) is not audited as a ``major program'' (as defined
under 31 U.S.C. 7501) must, without regard to the amount of loans made,
include in such audit the school's lending activities as a major
program.
(B) With regard to a school that is not a governmental entity or a
nonprofit organization, the audit must be conducted annually in
accordance with Sec. 682.305(c)(2)(i) through (iii).
(C) With regard to any school, the audit must include a
determination that--
(1) The school used all payments and proceeds (i.e., special
allowance and interest payments from borrowers, interest subsidy
payments, proceeds from the sale or other disposition of loans) from the
loans for need-based grant programs;
(2) Those need-based grants supplemented, rather than supplanted,
the institution's use of non-Federal funds for such grants; and
(3) The school used no more than a reasonable portion of payments
and proceeds from the loans for direct administrative expenses.
Master Promissory Note (MPN). A promissory note under which the
borrower may receive loans for a single period of enrollment or multiple
periods of enrollment.
Nationwide consumer reporting agency. A consumer reporting agency
that compiles and maintains files on consumers on a nationwide basis and
as defined in 15 U.S.C. 1681a(p).
Nonsubsidized Stafford loan. A Stafford loan made prior to October
1, 1992 that does not qualify for interest benefits under
Sec. 682.301(b) or special allowance payments under Sec. 682.302.
Origination relationship. A special business relationship between a
school and a lender in which the lender delegates to the school, or to
an entity or individual affiliated with the school, substantial
functions or responsibilities normally performed by lenders before
making FFEL program loans. In this situation, the school is considered
to have ``originated'' a loan made by the lender.
Origination fee. A fee that the lender is required to pay the
Secretary to help defray the Secretary's costs of subsidizing the loan.
The lender may pass this fee on to the Stafford loan borrower. The
lender must pass this fee on to the SLS or PLUS borrower.
Participating school. A school that has in effect a current
agreement with the Secretary under Sec. 682.600.
Period of enrollment. The period for which a Stafford, SLS, or PLUS
loan is intended. The period of enrollment must coincide with one or
more bona fide academic terms established by the school for which
institutional charges are generally assessed (e.g., a semester,
trimester, or quarter in weeks of instructional time, an academic year,
or the length of the student's program of study in weeks of
instructional time). The period of enrollment is also referred to as the
loan period.
Post-deferment grace period. For a loan made prior to October 1,
1981, a single period of six consecutive months beginning on the day
following the last day of an authorized deferment period.
Repayment period. (1) For a Stafford loan, the period beginning on
the date following the expiration of the grace period and ending no
later than 10 years, or 25 years under an extended repayment schedule,
from the date the first payment of principal is due from the borrower,
exclusive of any period of deferment or forbearance.
(2) For unsubsidized Stafford loans, the period that begins on the
day after the expiration of the applicable grace
[[Page 17]]
period that follows after the student ceases to be enrolled on at least
a half-time basis and ending no later than 10 years or 25 years under an
extended repayment schedule, from that date, exclusive of any period of
deferment or forbearance. However, payments of interest are the
responsibility of the borrower during the in-school and grace period,
but may be capitalized by the lender.
(3) For SLS loans, the period that begins on the date the loan is
disbursed, or if the loan is disbursed in more than one installment, on
the date the last disbursement is made and ending no later than 10 years
from that date, exclusive of any period of deferment or forbearance. The
first payment of principal is due within 60 days after the loan is fully
disbursed unless a borrower who is also a Stafford loan borrower but
who, has not yet entered repayment on the Stafford loan requests that
commencement of repayment on the SLS loan be delayed until the
borrower's grace period on the Stafford loan expires. Interest on the
loan accrues and is due and payable from the date of the first
disbursement of the loan. The borrower is responsible for paying
interest on the loan during the grace period and periods of deferment,
but the interest may be capitalized by the lender.
(4) For Federal PLUS loans, the period that begins on the date the
loan is disbursed, or if the loan is disbursed in more than one
installment, on the date the last disbursement is made and ending no
later than 10 years, or 25 years under an extended repayment schedule,
from that date, exclusive of any period of deferment or forbearance.
Interest on the loan accrues and is due and payable from the date of the
first disbursement of the loan.
(5) For Federal Consolidation loans, the period that begins on the
date the loan is disbursed and ends no later than 10, 12, 15, 20, 25, or
30 years from that date depending upon the sum of the amount of the
Consolidation loan, and the unpaid balance on other student loans,
exclusive of any period of deferment or forbearance.
Satisfactory repayment arrangement. (1) For purposes of regaining
eligibility under the title IV student financial assistance programs,
the making of six consecutive, on-time, voluntary full monthly payments
on a defaulted loan. A borrower may only obtain the benefit of this
paragraph with respect to renewed eligibility once.
(2) The required full monthly payment amount may not be more than is
reasonable and affordable based on the borrower's total financial
circumstances. Voluntary payments are payments made directly by the
borrower, and do not include payments obtained by income tax off-set,
garnishment, or income or asset execution. ``On-time'' means a payment
received by the Secretary or a guaranty agency or its agent within 20
days of the scheduled due date.
(3) A borrower has not used the one opportunity to renew eligibility
for title IV assistance if the borrower makes six consecutive, on-time,
voluntary, full monthly payments under an agreement to rehabilitate a
defaulted loan but does not receive additional title IV assistance prior
to defaulting on that loan again.
School. (1) An ``institution of higher education'' as that term is
defined in 34 CFR 600.4.
(2) For purposes of an in-school deferment, the term includes an
institution of higher education, whether or not it participates in any
title IV program or has lost its eligibility to participate in the FFEL
program because of a high default rate.
School-affiliated organization. A school-affiliated organization is
any organization that is directly or indirectly related to a school and
includes, but is not limited to, alumni organizations, foundations,
athletic organizations, and social, academic, and professional
organizations.
School lender. A school, other than a correspondence school, that
has entered into a contract of guarantee under this part with the
Secretary or, a similar agreement with a guaranty agency.
Stafford Loan Program. The loan program authorized by Title IV-B of
the Act which encourages the making of subsidized and unsubsidized loans
to undergraduate, graduate, and professional students and is one of the
Federal Family Education Loan programs.
[[Page 18]]
State lender. In any State, a single State agency or private
nonprofit agency designated by the State that has entered into a
contract of guarantee under this part with the Secretary, or a similar
agreement with a guaranty agency.
Subsidized Stafford Loan: A Stafford loan that qualifies for
interest benefits under Sec. 682.301(b) and special allowance under
Sec. 682.302.
Substantial gainful activity. A level of work performed for pay or
profit that involves doing significant physical or mental activities, or
a combination of both.
Temporarily totally disabled. The condition of an individual who,
though not totally and permanently disabled, is unable to work and earn
money or attend school, during a period of at least 60 days needed to
recover from injury or illness. With regard to a disabled dependent of a
borrower, this term means a spouse or other dependent who, during a
period of injury or illness, requires continuous nursing or similar
services for a period of at least 90 days.
Third-party servicer. Any State or private, profit or nonprofit
organization or any individual that enters into a contract with a lender
or guaranty agency to administer, through either manual or automated
processing, any aspect of the lender's or guaranty agency's FFEL
programs required by any statutory provision of or applicable to Title
IV of the HEA, any regulatory provision prescribed under that statutory
authority, or any applicable special arrangement, agreement, or
limitation entered into under the authority of statutes applicable to
Title IV of the HEA that governs the FFEL programs, including, any
applicable function described in the definition of third-party servicer
in 34 CFR part 668; originating, guaranteeing, monitoring, processing,
servicing, or collecting loans; claims submission; or billing for
interest benefits and special allowance.
Totally and permanently disabled. The condition of an individual
who--
(1) Is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment
that--
(i) Can be expected to result in death;
(ii) Has lasted for a continuous period of not less than 60 months;
or
(iii) Can be expected to last for a continuous period of not less
than 60 months; or
(2) Has been determined by the Secretary of Veterans Affairs to be
unemployable due to a service-connected disability.
Unsubsidized Stafford loan. A loan made after October 1, 1992,
authorized under section 428H of the Act for borrowers who do not
qualify for interest benefits under Sec. 682.301(b) but do qualify for
special allowance under Sec. 682.302.
Write-off. Cessation of collection activity on a defaulted FFEL loan
due to a determination in accordance with applicable standards that no
further collection activity is warranted.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 8 U.S.C. 1101; 20 U.S.C. 1070 to 1087-2, 1088-1098, 1141;
E.O. 12549 (3 CFR, 1986 Comp., p. 189), E.O. 12689 (3 CFR, 1989 Comp.,
p. 235))
[57 FR 60323, Dec. 18, 1992]
Editorial Note: For Federal Register citations affecting
Sec. 682.200, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
Sec. 682.201 Eligible borrowers.
(a) Student Stafford borrower. Except for a refinanced SLS/PLUS
loan, a student is eligible to receive a Stafford loan, and an
independent undergraduate student, a graduate or professional student,
or, subject to paragraph (a)(3) of this section, a dependent
undergraduate student, is eligible to receive an unsubsidized Stafford
loan, if the student who is enrolled or accepted for enrollment on at
least a half-time basis at a participating school meets the requirements
for an eligible student under 34 CFR part 668, and--
(1) In the case of an undergraduate student who seeks a Stafford
loan or unsubsidized Stafford loan for the cost of attendance at a
school that participates in the Pell Grant Program, has received a final
determination, or, in the case of a student who has filed an application
with the school for a Pell Grant, a preliminary determination, from the
school of the student's eligibility or ineligibility for a Pell Grant
[[Page 19]]
and, if eligible, has applied for the period of enrollment for which the
loan is sought;
(2) In the case of any student who seeks an unsubsidized Stafford
loan for the cost of attendance at a school that participates in the
Stafford Loan Program, the student must--
(i) Receive a determination of need for a subsidized Stafford loan;
and
(ii) If the determination of need is in excess of $200, have made a
request to a lender for a subsidized Stafford loan;
(3) For purposes of a dependent undergraduate student's eligibility
for an additional unsubsidized Stafford loan amount, as described at
Sec. 682.204(d), is a dependent undergraduate student for whom the
financial aid administrator determines and documents in the school's
file, after review of the family financial information provided by the
student and consideration of the student's debt burden, that the
student's parents likely will be precluded by exceptional circumstances
(e.g., denial of a PLUS loan to a parent based on adverse credit, the
student's parent receives only public assistance or disability benefits,
is incarcerated, or his or her whereabouts are unknown) from borrowing
under the PLUS Program and the student's family is otherwise unable to
provide the student's expected family contribution. A parent's refusal
to borrow a PLUS loan does not constitute an exceptional circumstance;
(4)(i) Reaffirms any FFEL loan amount on which there has been a
total cessation of collection activity, including all principal,
interest, collection costs, court costs, attorney fees, and late charges
that have accrued on that amount up to the date of reaffirmation.
(ii) For purposes of paragraph (a)(4) of this section, reaffirmation
means the acknowledgement of the loan by the borrower in a legally
binding manner. The acknowledgement may include, but is not limited to,
the borrower--
(A) Signing a new promissory note that includes the same terms and
conditions as the original note signed by the borrower or repayment
schedule; or
(B) Making a payment on the loan.
(5) The suspension of collection activity has been lifted from any
loan on which collection activity had been suspended based on a
conditional determination that the borrower was totally and permanently
disabled.
(6) In the case of a borrower whose prior loan under title IV of the
Act or whose TEACH Grant service obligation was discharged after a final
determination of total and permanent disability, the borrower must--
(i) Obtain certification from a physician that the borrower is able
to engage in substantial gainful activity;
(ii) Sign a statement acknowledging that the FFEL loan the borrower
receives cannot be discharged in the future on the basis of any
impairment present when the new loan is made, unless that impairment
substantially deteriorates; and
(iii) If a borrower receives a new FFEL loan, other than a Federal
Consolidation Loan, within three years of the date that any previous
title IV loan or TEACH Grant service obligation was discharged due to a
total and permanent disability in accordance with
Sec. 682.402(c)(3)(ii), 34 CFR 674.61(b)(3)(i), 34 CFR 685.213, or 34
CFR 686.42(b) based on a discharge request received on or after July 1,
2010, resume repayment on the previously discharged loan in accordance
with Sec. 682.402(c)(5), 34 CFR 674.61(b)(5), or 34 CFR 685.213(b)(4),
or acknowledge that he or she is once again subject to the terms of the
TEACH Grant agreement to serve before receiving the new loan.
(7) In the case of a borrower whose prior loan under title IV of the
HEA was conditionally discharged after an initial determination that the
borrower was totally and permanently disabled based on a discharge
request received prior to July 1, 2010, the borrower must--
(i) Comply with the requirements of paragraphs (a)(6)(i) and
(a)(6)(ii) of this section; and
(ii) Sign a statement acknowledging that--
(A) The loan that has been conditionally discharged prior to a final
determination of total and permanent disability cannot be discharged in
the future on the basis of any impairment present when the borrower
applied for
[[Page 20]]
a total and permanent disability discharge or when the new loan is made
unless that impairment substantially deteriorates; and
(B) Collection activity will resume on any loans in a conditional
discharge period.
(8) In the case of any student who seeks a loan but does not have a
certificate of graduation from a school providing secondary education or
the recognized equivalent of such a certificate, the student meets the
requirements under 34 CFR part 668.32(e).
(9) Is not serving in a medical internship or residency program,
except for an internship in dentistry.
(b) Student PLUS borrower. A graduate or professional student who is
enrolled or accepted for enrollment on at least a half-time basis at a
participating school is eligible to receive a PLUS Loan on or after July
1, 2006, if the student--
(1) Meets the requirements for an eligible student under 34 CFR 668;
(2) Meets the requirements of paragraphs (a)(4), (a)(5), (a)(6),
(a)(7), (a)(8), and (a)(9) of this section, if applicable;
(3) Has received a determination of his or her annual loan maximum
eligibility under the Federal Subsidized and Unsubsidized Stafford Loan
Program or under the Federal Direct Subsidized Stafford/Ford Loan
Program and Federal Direct Unsubsidized Stafford/Ford Loan Program, as
applicable; and
(4) Does not have an adverse credit history in accordance with
paragraphs (c)(2)(i) through (c)(2)(v) of this section, or obtains an
endorser who has been determined not to have an adverse credit history,
as provided for in paragraph (c)(1)(vii) of this section.
(c) Parent PLUS borrower. (1) A parent borrower, is eligible to
receive a PLUS Program loan, other than a loan made under
Sec. 682.209(e), if the parent--
(i) Is borrowing to pay for the educational costs of a dependent
undergraduate student who meets the requirements for an eligible student
set forth in 34 CFR part 668;
(ii) Provides his or her and the student's social security number;
(iii) Meets the requirements pertaining to citizenship and residency
that apply to the student in 34 CFR 668.33;
(iv) Meets the requirements concerning defaults and overpayments
that apply to the student in 34 CFR 668.35 and meets the requirements of
judgment liens that apply to the student under 34 CFR 668.32(g)(3);
(v) Except for the completion of a Statement of Selective Service
Registration Status, complies with the requirements for submission of a
Statement of Educational Purpose that apply to the student in 34 CFR
part 668;
(vi) Meets the requirements of paragraphs (a)(4), (a)(5), (a)(6),
and (a)(7) of this section, as applicable; and
(vii) In the case of a Federal PLUS loan made on or after July 1,
1993, does not have an adverse credit history or obtains an endorser who
has been determined not to have an adverse credit history as provided in
paragraph (c)(2)(ii) of this section.
(viii) Has completed repayment of any title IV, HEA program
assistance obtained by fraud, if the parent has been convicted of, or
has pled nolo contendere or guilty to, a crime involving fraud in
obtaining title IV, HEA program assistance.
(2)(i) For purposes of this section, the lender must obtain a credit
report on each applicant from at least one national consumer reporting
agency. The credit report must be secured within a timeframe that would
ensure the most accurate, current representation of the borrower's
credit history before the first day of the period of enrollment for
which the loan is intended.
(ii) Unless the lender determines that extenuating circumstances
existed, the lender must consider each applicant to have an adverse
credit history based on the credit report if--
(A) The applicant is considered 90 or more days delinquent on the
repayment of a debt; or
(B) The applicant has been the subject of a default determination,
bankruptcy discharge, foreclosure, repossession, tax lien, wage
garnishment, or write-off of a Title IV debt, during the five years
preceding the date of the credit report.
(iii) Nothing in this paragraph precludes the lender from
establishing more restrictive credit standards to determine whether the
applicant has an adverse credit history.
[[Page 21]]
(iv) The absence of any credit history is not an indication that the
applicant has an adverse credit history and is not to be used as a
reason to deny a PLUS loan to that applicant.
(v) The lender must retain a record of its basis for determining
that extenuating circumstances existed. This record may include, but is
not limited to, an updated credit report, a statement from the creditor
that the borrower has made satisfactory arrangements to repay the debt,
or a satisfactory statement from the borrower explaining any
delinquencies with outstanding balances of less than $500.
(3) For purposes of paragraph (c)(1) of this section, a ``parent''
includes the individuals described in the definition of ``parent'' in 34
CFR 668.2 and the spouse of a parent who remarried, if that spouse's
income and assets would have been taken into account when calculating a
dependent student's expected family contribution.
(d) Consolidation program borrower. (1) An individual is eligible to
receive a Consolidation loan if the individual--
(i) On the loans being consolidated--
(A) Is, at the time of application for a Consolidation loan--
(1) In a grace period preceding repayment;
(2) In repayment status;
(3) In a default status and has either made satisfactory repayment
arrangements as defined in applicable program regulations or has agreed
to repay the consolidation loan under the income-sensitive repayment
plan described in Sec. 682.209(a)(6)(iii) or the income-based repayment
plan described in Sec. 682.215;
(B) Not subject to a judgment secured through litigation, unless the
judgment has been vacated;
(C) Not subject to an order for wage garnishment under section 488A
of the Act, unless the order has been lifted;
(D) Not in default status resulting from a claim filed under
Sec. 682.412.
(ii) Certifies that no other application for a Consolidation loan is
pending; and
(iii) Agrees to notify the holder of any changes in address.
(2) A borrower may not consolidate a loan under this section for
which the borrower is wholly or partially ineligible.
(e) A borrower's eligibility to receive a Consolidation loan
terminates upon receipt of a Consolidation loan except that--
(1) Eligible loans received prior to the date a Consolidation loan
was made and loans received during the 180-day period following the date
a Consolidation loan was made, may be added to the Consolidation loan
based on the borrower's request received by the lender during the 180-
day period after the date the Consolidation loan was made;
(2) A borrower who receives an eligible loan before or after the
date a Consolidation loan is made may receive a subsequent Consolidation
loan;
(3) A Consolidation loan borrower may consolidate an existing
Consolidation loan if the borrower has at least one other eligible loan
made before or after the existing Consolidation loan that will be
consolidated;
(4) If the consolidation loan is in default or has been submitted to
the guaranty agency for default aversion, the borrower may obtain a
subsequent consolidation loan under the Federal Direct Consolidation
Loan Program for purposes of obtaining an income contingent repayment
plan or an income-based repayment plan; and
(5) A FFEL borrower may consolidate his or her loans (including a
FFEL Consolidation Loan) into the Federal Direct Consolidation Loan
Program for the purpose of using--
(i) The Public Service Loan Forgiveness Program; or
(ii) For FFEL Program loans first disbursed on or after October 1,
2008 (including Federal Consolidation Loans that repaid FFEL or Direct
Loan program Loans first disbursed on or after October 1, 2008), the no
accrual of interest benefit for active duty service members.
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, and
1091)
[57 FR 60323, Dec. 18, 1992]
Editorial Note: For Federal Register citations affecting
Sec. 682.201, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
[[Page 22]]
Sec. 682.202 Permissible charges by lenders to borrowers.
The charges that lenders may impose on borrowers, either directly or
indirectly, are limited to the following:
(a) Interest. The applicable interest rates for FFEL Program loans
are given in paragraphs (a)(1) through (a)(4) and (a)(8) of this
section.
(1) Stafford Loan Program. (i) For loans made prior to July 1, 1994,
if the borrower, on the date the promissory note evidencing the loan was
signed, had an outstanding balance of principal or interest on a
previous Stafford loan, the interest rate is the applicable interest
rate on that previous Stafford loan.
(ii) If the borrower, on the date the promissory note evidencing the
loan was signed, had no outstanding balance on any FFEL Program loan,
and the first disbursement was made--
(A) Prior to October 1, 1992, for a loan covering a period of
instruction beginning on or after July 1, 1988, the interest rate is 8
percent until 48 months elapse after the repayment period begins, and 10
percent thereafter; or
(B) On or after October 1, 1992, and prior to July 1, 1994, the
interest rate is a variable rate, applicable to each July 1-June 30
period, that equals the lesser of--
(1) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.10 percent; or
(2) 9 percent.
(iii) For a Stafford loan for which the first disbursement was made
before October 1, 1992--
(A) If the borrower, on the date the promissory note was signed, had
no outstanding balance on a Stafford loan but had an outstanding balance
of principal or interest on a PLUS or SLS loan made for a period of
enrollment beginning before July 1, 1988, or on a Consolidation loan
that repaid a loan made for a period of enrollment beginning before July
1, 1988, the interest rate is 8 percent; or
(B) If the borrower, on the date the promissory note evidencing the
loan was signed, had an outstanding balance of principal or interest on
a PLUS or SLS loan made for a period of enrollment beginning on or after
July 1, 1988, or on a Consolidation loan that repaid a loan made for a
period of enrollment beginning on or after July 1, 1988, the interest
rate is 8 percent until 48 months elapse after the repayment period
begins, and 10 percent thereafter.
(iv) For a Stafford loan for which the first disbursement was made
on or after October 1, 1992, but before December 20, 1993, if the
borrower, on the date the promissory note evidencing the loan was
signed, had no outstanding balance on a Stafford loan but had an
outstanding balance of principal or interest on a PLUS, SLS, or
Consolidation loan, the interest rate is 8 percent.
(v) For a Stafford loan for which the first disbursement was made on
or after December 20, 1993 and prior to July 1, 1994, if the borrower,
on the date the promissory note was signed, had no outstanding balance
on a Stafford loan but had an outstanding balance of principal or
interest on a PLUS, SLS, or Consolidation loan, the interest rate is the
rate provided in paragraph (a)(1)(ii)(B) of this section.
(vi) For a Stafford loan for which the first disbursement was made
on or after July 1, 1994 and prior to July 1, 1995, for a period of
enrollment that included or began on or after July 1, 1994, the interest
rate is a variable rate, applicable to each July 1-June 30 period, that
equals the lesser of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.10; or
(B) 8.25 percent.
(vii) For a Stafford loan for which the first disbursement was made
on or after July 1, 1995 and prior to July 1, 1998 the interest rate is
a variable rate applicable to each July 1-June 30 period, that equals
the lesser of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 2.5 percent during the in-school, grace and
deferment period and 3.10 percent during repayment; or
(B) 8.25 percent.
(viii) For a Stafford loan for which the first disbursement was made
on or after July 1, 1998, and prior to July 1,
[[Page 23]]
2006, the interest rate is a variable rate, applicable to each July 1-
June 30 period, that equals the lesser of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period plus 1.7 percent during the in-school, grace and
deferment periods and 2.3 percent during repayment; or
(B) 8.25 percent.
(ix) For a Stafford loan for which the first disbursement was made
on or after July 1, 2006, the interest rate is 6.8 percent.
(x) For a subsidized Stafford loan made to an undergraduate student
for which the first disbursement was made on or after:
(A) July 1, 2006 and before July 1, 2008, the interest rate is 6.8
percent on the unpaid principal balance of the loan.
(B) July 1, 2008 and before July 1, 2009, the interest rate is 6
percent on the unpaid principal balance of the loan.
(C) July 1, 2009 and before July 1, 2010, the interest rate is 5.6
percent on the unpaid principal balance of the loan.
(2) PLUS Program. (i) For a combined repayment schedule under
Sec. 682.209(d), the interest rate is the weighted average of the rates
of all loans included under that schedule.
(ii) For a loan disbursed on or after July 1, 1987 but prior to
October 1, 1992, and for any refinanced PLUS loan, the interest rate is
a variable rate, applicable to each July 1-June 30 period, that equals
the lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.25 percent; or
(B) 12 percent.
(iii) For a loan disbursed on or after October 1, 1992 and prior to
July 1, 1994, the interest rate is a variable rate, applicable to each
July 1-June 30 period, that equals the lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.10 percent; or
(B) 10 percent.
(iv) For a loan for which the first disbursement was made on or
after July 1, 1994 and prior to July 1, 1998, the interest rate is a
variable rate applicable to each July 1-June 30 period, that equals the
lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.10 percent; or
(B) 9 percent.
(v) For a loan for which the first disbursement was made on or after
July 1, 1998, the interest rate is a variable rate, applicable to each
July 1-June 30 period, that equals the lesser of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.10 percent; or
(B) 9 percent.
(vi)(A) Beginning on July 1, 2001, and prior to July 1, 2006, the
interest rate on the loans described in paragraphs (a)(2)(ii) through
(iv) of this section is a variable rate applicable to each July 1-June
30, as determined on the preceding June 26, and is equal to the weekly
average 1-year constant maturity Treasury yield, as published by the
Board of Governors of the Federal Reserve System, for the last calendar
week ending on or before such June 26; plus--
(1) 3.25 percent for loans described in paragraph (a)(2)(ii) of this
section; or
(2) 3.1 percent for loans described in paragraphs (a)(2)(iii) and
(iv) of this section.
(B) The interest rates calculated under paragraph (a)(2)(vi)(A) of
this section shall not exceed the limits specified in paragraphs
(a)(2)(ii)(B), (a)(2)(iii)(B), and (a)(2)(iv)(B) of this section, as
applicable.
(vii) For a PLUS loan first disbursed on or after July 1, 2006, the
interest rate is 8.5 percent.
(3) SLS Program. (i) For a combined repayment schedule under
Sec. 682.209(d), the interest rate is the weighted average of the rates
of all loans included under that schedule.
(ii) For a loan disbursed on or after July 1, 1987 but prior to
October 1, 1992,
[[Page 24]]
and for any refinance SLS loan, the interest rate is a variable rate,
applicable to each July 1-June 30 period, that equals the lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.25 percent; or
(B) 12 percent.
(iii) For a loan disbursed on or after October 1, 1992, the interest
rate is a variable rate, applicable to each July 1-June 30 period, that
equals the lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.10 percent; or
(B) 11 percent.
(iv)(A) Beginning on July 1, 2001, the interest rate on the loans
described in paragraphs (a)(3)(ii) and (iii) of this section is a
variable rate applicable to each July 1-June 30, as determined on the
preceding June 26, and is equal to the weekly average 1-year constant
maturity Treasury yield, as published by the Board of Governors of the
Federal Reserve System, for the last calendar week ending on or before
such June 26; plus--
(1) 3.25 percent for loans described in paragraph (a)(3)(ii) of this
section; or
(2) 3.1 percent for loans described in paragraph (a)(3)(iii) of this
section.
(B) The interest rates calculated under paragraph (a)(3)(iv)(A) of
this section shall not exceed the limits specified in paragraphs
(a)(3)(ii)(B) and (a)(3)(iii)(B) of this section, as applicable.
(4) Consolidation Program. (i) A Consolidation Program loan made
before July 1, 1994 bears interest at the rate that is the greater of--
(A) The weighted average of interest rates on the loans
consolidated, rounded to the nearest whole percent; or
(B) 9 percent.
(ii) A Consolidation loan made on or after July 1, 1994, for which
the loan application was received by the lender before November 13,
1997, bears interest at the rate that is equal to the weighted average
of interest rates on the loans consolidated, rounded upward to the
nearest whole percent.
(iii) For a Consolidation loan for which the loan application was
received by the lender on or after November 13, 1997 and before October
1, 1998, the interest rate for the portion of the loan that consolidated
loans other than HEAL loans is a variable rate, applicable to each July
1-June 30 period, that equals the lesser of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction held prior to June 1 of each year plus 3.10
percent; or
(B) 8.25 percent.
(iv) For a Consolidation loan for which the application was received
by the lender on or after October 1, 1998 and prior to July 1, 2010, the
interest rate for the portion of the loan that consolidated loans other
than HEAL loans is a fixed rate that is the lesser of--
(A) The weighted average of interest rates on the loans
consolidated, rounded to the nearest higher one-eighth of one percent;
or
(B) 8.25 percent.
(v) For a Consolidation loan for which the application was received
by the lender on or after November 13, 1997, the annual interest rate
applicable to the portion of each consolidation loan that repaid HEAL
loans is a variable rate adjusted annually on July 1 and must be equal
to the average of the bond equivalent rates of the 91-day Treasury bills
auctioned for the quarter ending June 30, plus 3 percent. There is no
maximum rate on this portion of the loan.
(5) Actual interest rates under the Stafford loan, SLS, PLUS, and
Consolidation Programs. A lender may charge a borrower an actual rate of
interest that is less than the applicable interest rate specified in
paragraphs (a)(1)-(4) of this section.
(6) Refund of excess interest paid on Stafford loans.
(i) For a loan with an applicable interest rate of 10 percent made
prior to July 23, 1992, and for a loan with an applicable interest rate
of 10 percent made from July 23, 1992 through September 30, 1992, to a
borrower with no outstanding FFEL Program loans--
(A) If during any calendar quarter, the sum of the average of the
bond equivalent rates of the 91-day Treasury
[[Page 25]]
bills auctioned for that quarter, plus 3.25 percent, is less than 10
percent, the lender shall calculate an adjustment and credit the
adjustment as specified under paragraph (a)(6)(i)(B) of this section if
the borrower's account is not more than 30 days delinquent on December
31. The amount of the adjustment for a calendar quarter is equal to--
(1) 10 percent minus the sum of the average of the bond equivalent
rates of the 91-day Treasury bills auctioned for the applicable quarter
plus 3.25 percent;
(2) Multiplied by the average daily principal balance of the loan
(not including unearned interest added to principal); and
(3) Divided by 4;
(B) No later than 30 calendar days after the end of the calendar
year, the holder of the loan shall credit any amounts computed under
paragraph (a)(6)(i)(A) of this section to--
(1) The Secretary, for amounts paid during any period in which the
borrower is eligible for interest benefits;
(2) The borrower's account to reduce the outstanding principal
balance as of the date the holder adjusts the borrower's account,
provided that the borrower's account was not more than 30 days
delinquent on that December 31; or
(3) The Secretary, for a borrower who on the last day of the
calendar year is delinquent for more than 30 days.
(ii) For a fixed interest rate loan made on or after July 23, 1992
to a borrower with an outstanding FFEL Program loan--
(A) If during any calendar quarter, the sum of the average of the
bond equivalent rates of the 91-day Treasury bills auctioned for that
quarter, plus 3.10 percent, is less than the applicable interest rate,
the lender shall calculate an adjustment and credit the adjustment to
reduce the outstanding principal balance of the loan as specified under
paragraph (a)(6)(ii)(C) of this section if the borrower's account is not
more than 30 days delinquent on December 31. The amount of an adjustment
for a calendar quarter is equal to--
(1) The applicable interest rate minus the sum of the average of the
bond equivalent rates of the 91-day Treasury bills auctioned for the
applicable quarter plus 3.10 percent;
(2) Multiplied by the average daily principal balance of the loan
(not including unearned interest added to principal); and
(3) Divided by 4;
(B) For any quarter or portion thereof that the Secretary was
obligated to pay interest subsidy on behalf of the borrower, the holder
of the loan shall refund to the Secretary, no later than the end of the
following quarter, any excess interest calculated in accordance with
paragraph (a)(6)(ii)(A) of this section;
(C) For any other quarter, the holder of the loan shall, within 30
days of the end of the calendar year, reduce the borrower's outstanding
principal by the amount of excess interest calculated under paragraph
(a)(6)(ii)(A) of this section, provided that the borrower's account was
not more than 30 days delinquent as of December 31;
(D) For a borrower who on the last day of the calendar year is
delinquent for more than 30 days, any excess interest calculated shall
be refunded to the Secretary; and
(E) Notwithstanding paragraphs (a)(6)(ii)(B), (C) and (D) of this
section, if the loan was disbursed during a quarter, the amount of any
adjustment refunded to the Secretary or credited to the borrower for
that quarter shall be prorated accordingly.
(7) Conversion to Variable Rate.
(i) A lender or holder shall convert the interest rate on a loan
under paragraphs (a)(6)(i) or (ii) of this section to a variable rate.
(ii) The applicable interest rate for each 12-month period beginning
on July 1 and ending on June 30 preceding each 12-month period is equal
to the sum of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to June 1; and
(B) 3.25 percent in the case of a loan described in paragraph
(a)(6)(i) of this section or 3.10 percent in the case of a loan
described in paragraph (a)(6)(ii) of this section.
(iii)(A) In connection with the conversion specified in paragraph
(a)(7)(i) of this section for any period prior to
[[Page 26]]
the conversion for which a rebate has not been provided under paragraph
(a)(6) of this section, a lender or holder shall convert the interest
rate to a variable rate.
(B) The interest rate for each period shall be reset quarterly and
the applicable interest rate for the quarter or portion shall equal the
sum of--
(1) The average of the bond equivalent rates of 91-day Treasury
bills auctioned for the preceding 3-month period; and
(2) 3.25 percent in the case of loans as specified under paragraph
(a)(6)(i) of this section or 3.10 percent in the case of loans as
specified under paragraph (a)(6)(ii) of this section.
(iv)(A) The holder of a loan being converted under paragraph
(a)(7)(iii)(A) of this section shall complete such conversion on or
before January 1, 1995.
(B) The holder shall, not later than 30 days prior to the
conversion, provide the borrower with--
(1) A notice informing the borrower that the loan is being converted
to a variable interest rate;
(2) A description of the rate to the borrower;
(3) The current interest rate; and
(4) An explanation that the variable rate will provide a
substantially equivalent benefit as the adjustment otherwise provided
under paragraph (a)(6) of this section.
(v) The notice may be provided as part of the disclosure requirement
as specified under Sec. 682.205.
(vi) The interest rate as calculated under this paragraph may not
exceed the maximum interest rate applicable to the loan prior to the
conversion.
(8) Applicability of the Servicemembers Civil Relief Act (SCRA) (50
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through
(4) of this section, a loan holder must use the official electronic
database maintained by the Department of Defense to identify all
borrowers with an outstanding loan who are members of the military
service, as defined in Sec. 682.208(j)(10) and ensure the interest rate
on a borrower's qualified loans with an outstanding balance does not
exceed the six percent maximum interest rate under 50 U.S.C. 527, App.
section 207(a) on FFEL Program loans made prior to the borrower entering
military service status. For purposes of this paragraph (a)(8), the
interest rate includes any other charges or fees applied to the loan.
(b) Capitalization. (1) A lender may add accrued interest and unpaid
insurance premiums or Federal default fees to the borrower's unpaid
principal balance in accordance with this section. This increase in the
principal balance of a loan is called ``capitalization.''
(2) Except as provided in paragraph (b)(4) and (b)(5) of this
section, a lender may capitalize interest payable by the borrower that
has accrued--
(i) For the period from the date the first disbursement was made to
the beginning date of the in-school period or, for a PLUS loan, for the
period from the date the first disbursement was made to the date the
repayment period begins;
(ii) For the in-school or grace periods, or for a period needed to
align repayment of an SLS with a Stafford loan, if capitalization is
expressly authorized by the promissory note (or with the written consent
of the borrower);
(iii) For a period of authorized deferment;
(iv) For a period of authorized forbearance; or
(v) For the period from the date the first installment payment was
due until it was made.
(3) A lender may capitalize accrued interest under paragraphs
(b)(2)(ii) through (iv) of this section no more frequently than
quarterly. Capitalization is again permitted when repayment is required
to begin or resume. A lender may capitalize accrued interest under
paragraph (b)(2) (i) and (v) of this section only on the date repayment
of principal is scheduled to begin.
(4)(i) For unsubsidized Stafford loans disbursed on or after October
7, 1998 and prior to July 1, 2000, the lender may capitalize the unpaid
interest that accrues on the loan according to the requirements of
section 428H(e)(2) of the Act.
(ii) For Stafford loans first disbursed on or after July 1, 2000,
the lender may capitalize the unpaid interest--
(A) When the loan enters repayment;
(B) At the expiration of a period of authorized deferment;
[[Page 27]]
(C) At the expiration of a period of authorized forbearance; and
(D) When the borrower defaults.
(5) For Consolidation loans, the lender may capitalize interest as
provided in paragraphs (b)(2) and (b)(3) of this section, except that
the lender may capitalize the unpaid interest for a period of authorized
in-school deferment only at the expiration of the deferment.
(6) For any borrower in an in-school or grace period or the period
needed to align repayment, deferment, or forbearance status, during
which the Secretary does not pay interest benefits and for which the
borrower has agreed to make payments of interest, the lender may
capitalize past due interest provided that the lender has notified the
borrower that the borrower's failure to resolve any delinquency
constitutes the borrower's consent to capitalization of delinquent
interest and all interest that will accrue through the remainder of that
period.
(c) Fees for FFEL Program loans. (1)(i) For Stafford loans first
disbursed prior to July 1, 2006, a lender may charge a borrower an
origination fee not to exceed 3 percent of the principal amount of the
loan.
(ii) For Stafford loans first disbursed on or after July 1, 2006,
but before July 1, 2007, a lender may charge a borrower an origination
fee not to exceed 2 percent of the principal amount of the loan.
(iii) For Stafford loans first disbursed on or after July 1, 2007,
but before July 1, 2008, a lender may charge a borrower an origination
fee not to exceed 1.5 percent of the principal amount of the loan.
(iv) For Stafford loans first disbursed on or after July 1, 2008,
but before July 1, 2009, a lender may charge a borrower an origination
fee not to exceed 1 percent of the principal amount of the loan.
(v) For Stafford loans first disbursed on or after July 1, 2009, but
before July 1, 2010, a lender may charge a borrower an origination fee
not to exceed .5 percent of the principal amount of the loan.
(vi) Except as provided in paragraph (c)(2) of this section, a
lender must charge all borrowers the same origination fee.
(2)(i) A lender may charge a lower origination fee than the amount
specified in paragraph (c)(1) of this section to a borrower whose
expected family contribution (EFC), used to determine eligibility for
the loan, is equal to or less than the maximum qualifying EFC for a
Federal Pell Grant at the time the loan is certified or to a borrower
who qualifies for a subsidized Stafford loan. A lender must charge all
such borrowers the same origination fee.
(ii) With the approval of the Secretary, a lender may use a standard
comparable to that defined in paragraph (c)(2)(i) of this section.
(3) If a lender charges a lower origination fee on unsubsidized
loans under paragraph (c)(1) or (c)(2) of this section, the lender must
charge the same fee on subsidized loans.
(4)(i) For purposes of this paragraph (c), a lender is defined as:
(A) All entities under common ownership, including ownership by a
common holding company, that make loans to borrowers in a particular
state; and
(B) Any beneficial owner of loans that provides funds to an eligible
lender trustee to make loans on the beneficial owner's behalf in a
particular state.
(ii) If a lender as defined in paragraph (c)(4)(i) charges a lower
origination fee to any borrower in a particular state under paragraphs
(c)(1) or (c)(2) of this section, the lender must charge all such
borrowers who reside in that state or attend school in that state the
same origination fee.
(5) A lender must charge a borrower an origination fee on a PLUS
loan of 3 percent of the principal amount of the loan;
(6) A lender must deduct a pro rata portion of the fee (if charged)
from each disbursement; and
(7) A lender must refund by a credit against the borrower's loan
balance the portion of the origination fee previously deducted from the
loan that is attributable to any portion of the loan--
(i) That is returned by a school to a lender in order to comply with
the Act or with applicable regulations;
[[Page 28]]
(ii) That is repaid or returned within 120 days of disbursement,
unless--
(A) The borrower has no FFEL Program loans in repayment status and
has requested, in writing, that the repaid or returned funds be used for
a different purpose; or
(B) The borrower has a FFEL Program loan in repayment status, in
which case the payment is applied in accordance with Sec. 682.209(b)
unless the borrower has requested, in writing, that the repaid or
returned funds be applied as a cancellation of all or part of the loan;
(iii) For which a loan check has not been negotiated within 120 days
of disbursement; or
(iv) For which loan proceeds disbursed by electronic funds transfer
or master check have not been released from the restricted account
maintained by the school within 120 days of disbursement.
(d) Insurance premium and Federal default fee. (1) For loans
guaranteed prior to July 1, 2006, a lender may charge the borrower the
amount of the insurance premium paid by the lender to the guarantor (up
to 1 percent of the principal amount of the loan) if that charge is
provided for in the promissory note.
(2) For loans guaranteed on or after July 1, 2006 and prior to July
1, 2010, a lender may charge the borrower the amount of the Federal
default fee paid by the lender to the guarantor (up to 1 percent of the
principal amount of the loan) if that charge is provided for in the
promissory note.
(3) If the borrower is charged the insurance premium or the Federal
default fee, the amount charged must be deducted proportionately from
each disbursement of the borrower's loan proceeds, if the loan is
disbursed in more than one installment.
(4) The lender shall refund the insurance premium or Federal default
fee paid by the borrower in accordance with the circumstances and
procedures applicable to the return of origination fees, as described in
paragraph (c)(7) of this section.
(e) Late charge. (1) If authorized by the borrower's promissory
note, the lender may require the borrower to pay a late charge under the
circumstances described in paragraph (e)(2) of this section. This charge
may not exceed six cents for each dollar of each late installment.
(2) The lender may require the borrower to pay a late charge if the
borrower fails to pay all or a portion of a required installment payment
within 15 days after it is due.
(f) Collection charges. (1) If provided for in the borrower's
promissory note, and notwithstanding any provisions of State law, the
lender may require that the borrower or any endorser pay costs incurred
by the lender or its agents in collecting installments not paid when
due, including, but not limited to--
(i) Attorney fees;
(ii) Court costs; and
(iii) Telegrams.
(2) The costs referred to in paragraph (f)(1) of this section may
not include routine collection costs associated with preparing letters
or notices or with making personal contacts with the borrower (e.g.,
local and long-distance telephone calls).
(g) Special allowance. Pursuant to Sec. 682.412(c), a lender may
charge a borrower the amount of special allowance paid by the Secretary
on behalf of the borrower.
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1082,
1087-1, 1091a)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22475, Apr. 29, 1994;
59 FR 61427, Nov. 30, 1994; 61 FR 60486, Nov. 27, 1996; 62 FR 63434,
Nov. 28, 1997; 64 FR 18976, Apr. 16, 1999; 64 FR 58953, Nov. 1, 1999; 66
FR 34762, June 29, 2001; 71 FR 45700, Aug. 9, 2006; 72 FR 62000, Nov. 1,
2007; 74 FR 55991, Oct. 29, 2009; 78 FR 65807, Nov. 1, 2013; 80 FR
67236, Oct. 30, 2015]
Effective Date Note: At 81 FR 76079, Nov. 1, 2016, Sec. 682.202 was
amended in paragraph (b)(1) by removing the words ``A lender'' and
adding in their place ``Except as provided in Sec. 682.405(b)(4), a
lender,'' eff. July 1, 2017. At 82 FR 27621, June 16, 2017, the
effective date was delayed indefinitely.
Sec. 682.203 Responsible parties.
(a) Delegation of functions. A school, lender, or guaranty agency
may contract or otherwise delegate the performance of its functions
under the Act and this part to a servicing agency or other party. This
contracting or other delegation of functions does not relieve the
school, lender, or guaranty agency of its duty to comply with the
requirements of the Act and this part.
[[Page 29]]
(b) Trustee responsibility. A lender that holds a loan in its
capacity as a trustee assumes responsibility for complying with all
statutory and regulatory requirements imposed on any other holders of a
loan.
(Authority: 20 U.S.C. 1082)
Sec. 682.204 Maximum loan amounts.
(a) Stafford Loan Program annual limits. (1) In the case of an
undergraduate student who has not successfully completed the first year
of a program of undergraduate education, the total amount the student
may borrow for any academic year of study under the Stafford Loan
Program in combination with the Direct Subsidized Loan Program may not
exceed the following:
(i) $2,625, or, for a loan disbursed on or after July 1, 2007,
$3,500, for a program of study of at least a full academic year in
length.
(ii) For a one-year program of study with less than a full academic
year remaining, the amount that is the same ratio to $3,500, as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.009
(iii) For a program of study that is less than a full academic year
in length, the amount that is the same ratio to $3,500 as the lesser of
the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.000
(2) In the case of a student who has successfully completed the
first year of an undergraduate program but has not successfully
completed the second year of an undergraduate program, the total amount
the student may borrow for any academic year of study under the Stafford
Loan Program in combination with the Direct Subsidized Loan Program may
not exceed the following:
(i) $4,500 for a program whose length is at least a full academic
year in length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $4,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.011
[[Page 30]]
(3) In the case of an undergraduate student who has successfully
completed the first and second years of a program of study of
undergraduate education but has not successfully completed the remainder
of the program, the total amount the student may borrow for any academic
year of study under the Stafford Loan Program in combination with the
Direct Subsidized Loan Program may not exceed the following:
(i) $5,500 for a program whose length is at least an academic year
in length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.012
(4) In the case of a student who has an associate or baccalaureate
degree that is required for admission into a program and who is not a
graduate or professional student, the total amount the student may
borrow for any academic year of study may not exceed the amounts in
paragraph (a)(3) of this section.
(5) In the case of a graduate or professional student, the total
amount the student may borrow for loans made prior to July 1, 2010 for
any academic year of study under the Stafford Loan Program, in
combination with any amount borrowed under the Direct Subsidized Loan
Program, may not exceed $8,500.
(6) In the case of a student enrolled for no longer than one
consecutive 12-month period in a course of study necessary for
enrollment in a program leading to a degree or certificate, the total
amount the student may borrow for any academic year of study under the
Stafford Loan Program in combination with the Direct Subsidized Loan
Program may not exceed the following:
(i) $2,625 for coursework necessary for enrollment in an
undergraduate degree or certificate program.
(ii) $5,500 for coursework necessary for enrollment in a graduate or
professional degree or certificate program for a student who has
obtained a baccalaureate degree.
(7) In the case of a student who has obtained a baccalaureate degree
and is enrolled or accepted for enrollment in coursework necessary for a
professional credential or certification from a State that is required
for employment as a teacher in an elementary or secondary school in that
State, the total amount the student may borrow for any academic year of
study under the Stafford Loan Program in combination with the Direct
Subsidized Loan Program may not exceed $5,500.
(8) Except as provided in paragraph (a)(4) of this section, an
undergraduate student who is enrolled in a program that is one academic
year or less in length may not borrow an amount for any academic year of
study that exceeds the amounts in paragraph (a)(1) of this section.
(9) Except as provided in paragraph (a)(4) of this section--
(i) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has not successfully
completed the first year of that program may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph (a)(1)
of this section.
(ii) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has successfully completed
the first year of that program, but has not successfully completed the
second year of the program, may not borrow an amount for any academic
year of study that exceeds the amounts in paragraph (a)(2) of this
section.
(b) Stafford Loan Program aggregate limits. The aggregate unpaid
principal amount of all Stafford Loan Program loans in combination with
loans received by the student under the Direct Subsidized Loan Program,
but excluding the amount of capitalized interest may not exceed the
following:
[[Page 31]]
(1) $23,000 in the case of any student who has not successfully
completed a program of study at the undergraduate level.
(2) $65,500, in the case of a graduate or professional student,
including loans for undergraduate study.
(c) Unsubsidized Stafford Loan Program. (1) Except for a dependent
undergraduate student who qualifies for additional Unsubsidized Stafford
Loan funds because the student's parents are unable to borrow under the
PLUS Loan Program, as described in paragraph (d) of this section, the
total amount the dependent undergraduate student may borrow for any
academic year under the Unsubsidized Stafford Loan Program in
combination with the Direct Unsubsidized Loan Program is the same amount
determined under paragraph (a) of this section, less any amount received
under the Stafford Loan Program or the Direct Subsidized Loan program,
plus--
(i) $2,000, for a program of study of at least a full academic year
in length.
(ii) For a program of study that is at least one academic year or
more in length with less than a full academic year remaining, the amount
that is the same ratio to $2,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.001
(iii) For a program of study that is less than a full academic year
in length, the amount that is the same ratio to $2,000 as the lesser of
the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.002
(2) In the case of an independent undergraduate student, a graduate
or professional student, or certain dependent undergraduate students
under the conditions specified in Sec. 682.201(a)(3), the total amount
the student may borrow for any period of enrollment under the
Unsubsidized Stafford Loan and Direct Unsubsidized Loan programs may not
exceed the amounts determined under paragraph (a) of this section less
any amount received under the Federal Stafford Loan Program or the
Direct Subsidized Loan Program, in combination with the amounts
determined under paragraph (d) of this section.
[[Page 32]]
(d) Additional eligibility under the Unsubsidized Stafford Loan
Program. An independent undergraduate student, graduate or professional
student, and certain dependent undergraduate students under the
conditions specified in Sec. 682.201(a)(3) may borrow amounts under the
Unsubsidized Stafford Loan Program in addition to any amount borrowed
under paragraphs (a) and (c) of this section, except as provided in
paragraph (d)(9) of this section. The additional amount that such a
student may borrow for any academic year of study under the Unsubsidized
Stafford Loan Program in combination with the Direct Unsubsidized Loan
Program, in addition to the amounts allowed under paragraphs (a) and (c)
of this section, except as provided in paragraph (d)(9) of this section
for certain dependent undergraduate students--
(1) In the case of a student who has not successfully completed the
first year of a program of undergraduate education, may not exceed the
following:
(i) $6,000 for a program of study of at least a full academic year.
(ii) For a one-year program of study with less than a full academic
year remaining, the amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.013
(iii) For a program of study that is less than a full academic year
in length, an amount that is the same ratio to $6,000 as the lesser of--
[GRAPHIC] [TIFF OMITTED] TR01NO13.003
(2) In the case of a student who has completed the first year of a
program of undergraduate education but has not successfully completed
the second year of a program of undergraduate education may not exceed
the following:
(i) $6,000 for a program of study of at least a full academic year
in length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.015
[[Page 33]]
(3) In the case of a student who has successfully completed the
second year of a program of undergraduate education, but has not
completed the remainder of the program, may not exceed the following:
(i) $7,000 for a program of study of at least a full academic year.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $7,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.016
(4) In the case of a student who has an associate or baccalaureate
degree that is required for admission into a program and who is not a
graduate or professional student, the total amount the student may
borrow for any academic year of study may not exceed the amounts in
paragraph (d)(3) of this section.
(5) In the case of a graduate or professional student, may not
exceed $12,000.
(6) In the case of a student enrolled for no longer than one
consecutive 12-month period in a course of study necessary for
enrollment in a program leading to a degree or a certificate may not
exceed the following:
(i) $6,000 for coursework necessary for enrollment in an
undergraduate degree or certificate program.
(ii) $7,000 for coursework necessary for enrollment in a graduate or
professional degree or certificate program for a student who has
obtained a baccalaureate degree.
(iii) In the case of a student who has obtained a baccalaureate
degree and is enrolled or accepted for enrollment in a program necessary
for a professional credential or a certification from a State that is
required for employment as a teacher in an elementary or secondary
school in that State, $7,000.
(7) Except as provided in paragraph (d)(4) of this section, an
undergraduate student who is enrolled in a program that is one academic
year or less in length may not borrow an amount for any academic year of
study that exceeds the amounts in paragraph (d)(1) of this section.
(8) Except as provided in paragraph (d)(4) of this section--
(i) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has not successfully
completed the first year of that program may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph (d)(1)
of this section.
(ii) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has successfully completed
the first year of that program, but has not successfully completed the
second year of the program, may not borrow an amount for any academic
year of study that exceeds the amounts in paragraph (d)(2) of this
section.
(9) A dependent undergraduate student who qualifies for the
additional Unsubsidized Stafford Loan amounts under this section in
accordance with the conditions specified in Sec. 682.201(a)(3) is not
eligible to receive the additional Unsubsidized Stafford Loan amounts
under paragraph (c)(1)(ii) of this section.
(e) Combined Federal Stafford, SLS and Federal Unsubsidized Stafford
Loan Program aggregate limits. The aggregate unpaid principal amount of
Stafford Loans, Direct Subsidized Loans, Unsubsidized Stafford Loans,
Direct Unsubsidized Loans and SLS Loans, but excluding the amount of
capitalized interest, may not exceed the following:
(1) $31,000 for a dependent undergraduate student.
(2) $57,500 for an independent undergraduate student or a dependent
undergraduate student under the conditions specified in
Sec. 682.201(a)(3).
(3) $138,500 for a graduate or professional student.
(f) SLS Program aggregate limit. The total unpaid principal amount
of SLS Program loans made to--
[[Page 34]]
(1) An undergraduate student may not exceed--
(i) $20,000, for loans for which the first disbursement is made
prior to July 1, 1993; or
(ii) $23,000, for loans for which the first disbursement was made on
or after July 1, 1993; and
(2) A graduate student may not exceed--
(i) $20,000, for loans for which the first disbursement is made
prior to July 1, 1993; or
(ii) $73,000, for loans for which the first disbursement was made on
or after July 1, 1993 including loans for undergraduate study.
(g) PLUS Program annual limit. The total amount of all PLUS Program
loans that a parent or student may borrow for any academic year of study
may not exceed the student's cost of education minus other estimated
financial assistance for that student.
(h) Minimum loan interval. The annual loan limits applicable to a
student apply to the length of the school's academic year.
(i) Treatment of Consolidation loans for purposes of determining
loan limits. The percentage of the outstanding balance on a
Consolidation loan counted against a borrower's aggregate loan limits
under the Stafford loan, Unsubsidized Stafford loan, Direct Stafford
loan, Direct Unsubsidized loan, SLS, PLUS, Perkins Loan, or HEAL program
must equal the percentage of the original amount of the Consolidation
loan attributable to loans made to the borrower under that program.
(j) Maximum loan amounts. In no case may a Stafford, PLUS, or SLS
loan amount exceed the student's estimated cost of attendance for the
period of enrollment for which the loan is intended, less--
(1) The student's estimated financial assistance for that period;
and
(2) The borrower's expected family contribution for that period, in
the case of a Stafford loan that is eligible for interest benefits.
(k) In determining a Stafford loan amount in accordance with
Sec. 682.204 (a), (c) and (d), the school must use the definition of
academic year in 34 CFR 668.3.
(l) Any TEACH Grants that have been converted to Direct Unsubsidized
Loans are not counted against annual or any aggregate loan limits under
paragraphs (c), (d), and (e) of this section.
(Authority: 20 U.S.C. 1070g, 1078, 1078-2, 1078-3, 1078-8)
[59 FR 33350, June 28, 1994, as amended at 64 FR 18976, Apr. 16, 1999;
64 FR 58954, Nov. 1, 1999; 66 FR 34763, June 29, 2001; 67 FR 67078, Nov.
1, 2002; 71 FR 45700, Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006; 73 FR
35495, June 23, 2008; 73 FR 36793, June 30, 2008; 74 FR 55991, Oct. 29,
2009; 78 FR 65808, Nov. 1, 2013]
Sec. 682.205 Disclosure requirements for lenders.
(a) Repayment information-- (1) Disclosures at or prior to
repayment. The lender must disclose the information described in
paragraph (a)(2) of this section, in simple and understandable terms, in
a statement provided to the borrower at or prior to the beginning of the
repayment period. In the case of a Federal Stafford or Federal PLUS
loan, the disclosures required by this paragraph must be made not less
than 30 days nor more than 150 days before the first payment on the loan
is due from the borrower. If the borrower enters the repayment period
without the lender's knowledge, the lender must provide the required
disclosures to the borrower immediately upon discovering that the
borrower has entered the repayment period.
(2) The lender shall provide the borrower with--
(i) The lender's name, a toll-free telephone number accessible from
within the United States that the borrower can use to obtain additional
loan information, and the address to which correspondence with the
lender and payments should be sent;
(ii) The scheduled date the repayment period is to begin, or a
deferment under Sec. 682.210(v), if applicable, is to end;
(iii) The estimated balance, including the estimated amount of
interest to be capitalized, owed by the borrower as of the date upon
which the repayment period is to begin, a deferment under
Sec. 682.210(v), if applicable, is to end, or the date of the
disclosure, whichever is later;
[[Page 35]]
(iv) The actual interest rate on the loan;
(v) An explanation of any fees that may accrue or be charged to the
borrower during the repayment period;
(vi) The borrower's repayment schedule, including the due date of
the first installment and the number, amount, and frequency of payments
based on the repayment schedule selected by the borrower;
(vii) Except in the case of a Consolidation loan, an explanation of
any special options the borrower may have for consolidating or
refinancing the loan and of the availability and terms of such other
options;
(viii) The estimated total amount of interest to be paid on the
loan, assuming that payments are made in accordance with the repayment
schedule, and if interest has been paid, the amount of interest paid;
(ix) A statement that the borrower has the right to prepay all or
part of the loan at any time, without penalty;
(x) Information on any special loan repayment benefits offered on
the loan, including benefits that are contingent on repayment behavior,
and any other special loan repayment benefits for which the borrower may
be eligible that would reduce the amount or length of repayment; and at
the request of the borrower, an explanation of the effect of a reduced
interest rate on the borrower's total payoff amount and time for
repayment;
(xi) If the lender provides a repayment benefit, any limitations on
that benefit, any circumstances in which the borrower could lose that
benefit, and whether and how the borrower may regain eligibility for the
repayment benefit;
(xii) A description of all the repayment plans available to the
borrower and a statement that the borrower may change plans during the
repayment period at least annually;
(xiii) A description of the options available to the borrower to
avoid or be removed from default, as well as any fees associated with
those options; and
(xiv) Any additional resources, including nonprofit organizations,
advocates and counselors, including the Department of Education's
Student Loan Ombudsman, the lender is aware of where the borrower may
obtain additional advice and assistance on loan repayment.
(3) Required disclosures during repayment. In addition to the
disclosures required in paragraph (a)(1) of this section, the lender
must provide the borrower of a FFEL loan with a bill or statement that
corresponds to each payment installment time period in which a payment
is due that includes in simple and understandable terms--
(i) The original principal amount of the borrower's loan;
(ii) The borrower's current balance, as of the time of the bill or
statement;
(iii) The interest rate on the loan;
(iv) The total amount of interest for the preceding installment paid
by the borrower;
(v) The aggregate amount paid by the borrower on the loan, and
separately identifying the amount the borrower has paid in interest on
the loan, the amount of fees the borrower has paid on the loan, and the
amount paid against the balance in principal;
(vi) A description of each fee the borrower has been charged for the
most recent preceding installment time period;
(vii) The date by which a payment must be made to avoid additional
fees and the amount of that payment and the fees;
(viii) The lender's or servicer's address and toll-free telephone
number for repayment options, payments and billing error purposes; and
(ix) A reminder that the borrower may change repayment plans, a list
of all of the repayment plans that are available to the borrower, a link
to the Department of Education's Web site for repayment plan
information, and directions on how the borrower may request a change in
repayment plans from the lender.
(4) Required disclosures for borrowers having difficulty making
payments. (i) Except as provided in paragraph (a)(4)(ii) of this
section, the lender must provide a borrower who has notified the lender
that he or she is having difficulty making payments with--
(A) A description of the repayment plans available to the borrower,
and how the borrower may request a change in repayment plan;
[[Page 36]]
(B) A description of the requirements for obtaining forbearance on
the loan and any costs associated with forbearance; and
(C) A description of the options available to the borrower to avoid
default and any fees or costs associated with those options.
(ii) A disclosure under paragraph (a)(4)(i) of this section is not
required if the borrower's difficulty has been resolved through contact
with the borrower resulting from an earlier disclosure or other
communication between the lender and the borrower.
(5) Required disclosures for borrowers who are 60-days delinquent in
making payments on a loan. (i) The lender shall provide to a borrower
who is 60 days delinquent in making required payments a notice of--
(A) The date on which the loan will default if no payment is made;
(B) The minimum payment the borrower must make, as of the date of
the notice, to avoid default, including the payment amount needed to
bring the loan current or payment in full;
(C) A description of the options available to the borrower to avoid
default, including deferment and forbearance and any fees and costs
associated with those options;
(D) Any options for discharging the loan that may be available to
the borrower; and
(E) Any additional resources, including nonprofit organizations,
advocates and counselors, including the Department of Education's
Student Loan Ombudsman, the lender is aware of where the borrower may
obtain additional advice and assistance on loan repayment.
(ii) The notice must be sent within five business days of the date
the borrower becomes 60 days delinquent, unless the lender has sent such
a notice within the previous 120 days.
(b) Exception to disclosure requirement. In the case of a Federal
Unsubsidized Stafford loan or a Federal PLUS loan, the lender is not
required to provide the information in paragraph (a)(2)(viii) of this
section if the lender, instead of that disclosure, provides the borrower
with sample projections of the monthly repayment amounts assuming
different levels of borrowing and interest accruals resulting from
capitalization of interest while the borrower or student on whose behalf
the loan is made is in school. Sample projections must disclose the cost
to the borrower of principal and interest, interest only, and
capitalized interest. The lender may rely on the Stafford and PLUS
promissory notes and associated materials approved by the Secretary for
purposes of complying with this section.
(c) Borrower may not be charged for disclosures. The lender must
provide the information required by this section at no cost to the
borrower.
(d) Method of disclosure. Any disclosure of information by a lender
under this section may be through written or electronic means.
(e) Notice of availability of income-sensitive and income-based
repayment options. (1) At the time of offering a borrower a loan and at
the time of offering a borrower repayment options, the lender must
provide the borrower with a notice that informs the borrower of the
availability of income-sensitive and, except for parent PLUS borrowers
and Consolidation Loan borrowers whose Consolidation Loan paid off one
or more parent PLUS Loans, income-based repayment plans. This
information may be provided in a separate notice or as part of the other
disclosures required by this section. The notice must inform the
borrower--
(i) That the borrower is eligible for income-sensitive repayment and
may be eligible for income-based repayment, including through loan
consolidation;
(ii) Of the procedures by which the borrower can elect income-
sensitive or income-based repayment; and
(iii) Of where and how the borrower may obtain more information
concerning income-sensitive and income-based repayment plans.
(2) The promissory note and associated materials approved by the
Secretary satisfy the loan origination notice requirements provided for
in paragraph (e)(1) of this section.
(f) Disclosure procedures when a borrower's address is not
available. If a lender receives information indicating it does not know
the borrower's current address, the lender is excused from providing
disclosure information under
[[Page 37]]
this section unless it receives communication indicating a valid
borrower address before the 241st day of delinquency, at which point the
lender must resume providing the installment bill or statement, and any
other disclosure information required under this section not previously
provided.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1083(a))
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59
FR 25745, May 17, 1994; 60 FR 30788, June 12, 1995; 64 FR 18976, Apr.
16, 1999; 64 FR 58625, Oct. 29, 1999; 64 FR 58965, Nov. 1, 1999; 71 FR
45700. Aug. 9, 2006; 73 FR 63248, Oct. 23, 2008; 74 FR 55992, Oct. 29,
2009; 78 FR 65810, Nov. 1, 2013]
Secs. 682.206-682.207 [Reserved]
Sec. 682.208 Due diligence in servicing a loan.
(a) The loan servicing process includes reporting to nationwide
consumer reporting agencies, responding to borrower inquiries,
establishing the terms of repayment, and reporting a borrower's
enrollment and loan status information.
(b)(1) An eligible lender of a FFEL loan shall report to each
nationwide consumer reporting agency--
(i) The total amount of FFEL loans the lender has made to the
borrower, within 90 days of each disbursement;
(ii) The outstanding balance of the loans;
(iii) Information concerning the repayment status of the loan, no
less frequently than every 90 days or quarterly after a change in that
status from current to delinquent;
(iv) The date the loan is fully repaid by, or on behalf of, the
borrower, or discharged by reason of the borrower's death, bankruptcy,
or total and permanent disability, within 90 days after that date;
(v) Other information required by law to be reported.
(2) An eligible lender that has acquired a FFEL loan shall report to
each nationwide consumer reporting agency the information required by
paragraph (b)(1)(ii)-(v) of this section within 90 days of its
acquisition of the loan.
(3) Upon receipt of a valid identity theft report as defined in
section 603(q)(4) of the Fair Credit Reporting Act (15 U.S.C. 1681a) or
notification from a consumer reporting agency that information furnished
by the lender is a result of an alleged identity theft as defined in
Sec. 682.402(e)(14), an eligible lender shall suspend consumer reporting
agency reporting for a period not to exceed 120 days while the lender
determines the enforceability of a loan.
(i) If the lender determines that a loan does not qualify for a
discharge under Sec. 682.402(e)(1)(i)(C), but is nonetheless
unenforceable, the lender must--
(A) Notify the consumer reporting agency of its determination; and
(B) Comply with Secs. 682.300(b)(2)(ix) and 682.302(d)(1)(viii).
(ii) [Reserved]
(4) If, within 3 years of the lender's receipt of an identity theft
report, the lender receives from the borrower evidence specified in
Sec. 682.402(e)(3)(v), the lender may submit a claim and receive
interest subsidy and special allowance payments that would have accrued
on the loan.
(c)(1) A lender shall respond within 30 days after receipt to any
inquiry from a borrower or any endorser on a loan.
(2) When a lender learns that a Stafford loan borrower or a student
PLUS loan borrower is no longer enrolled at an institution of higher
education on at least a half-time basis, the lender shall promptly
contact the borrower in order to establish the terms of repayment.
(3)(i) If the borrower disputes the terms of the loan in writing and
the lender does not resolve the dispute, the lender's response must
provide the borrower with an appropriate contact at the guaranty agency
for the resolution of the dispute.
(ii) If the guaranty agency does not resolve the dispute, the
agency's response must provide the borrower with information on the
availability of the Student Loan Ombudsman's office.
(d) Subject to the rules regarding maximum duration of a repayment
period and minimum annual payment described in Sec. 682.209(a)(7), (c),
and (h), nothing in this part is intended to
[[Page 38]]
limit a lender's discretion in establishing, or, with the borrower's
consent, revising a borrower's repayment schedule--
(1) To provide for graduated or income-sensitive repayment terms.
The Secretary strongly encourages lenders to provide a graduated or
income-sensitive repayment schedule to a borrower providing for at least
the payment of interest charges, unless the borrower requests otherwise,
in order to make the borrower's repayment burden commensurate with his
or her projected ability to pay; or
(2) To provide a single repayment schedule, as authorized and if
practicable, for all FFEL program loans to the borrower held by the
lender.
(e)(1) If the assignment or transfer of ownership interest of a
Stafford, PLUS, SLS, or Consolidation loan is to result in a change in
the identity of the party to whom the borrower must send subsequent
payments, the assignor and assignee of the loan shall, no later than 45
days from the date the assignee acquires a legally enforceable right to
receive payment from the borrower on the assigned loan, provide, either
jointly or separately, a notice to the borrower of--
(i) The assignment;
(ii) The identity of the assignee;
(iii) The name and address of the party to whom subsequent payments
or communications must be sent;
(iv) The telephone numbers of both the assignor and the assignee;
(v) The effective date of the assignment or transfer of the loan;
(vi) The date, if applicable, on which the current loan servicer
will stop accepting payments; and
(vii) The date on which the new loan servicer will begin accepting
payments.
(2) If the assignor and assignee separately provide the notice
required by paragraph (e)(1) of this section, each notice must indicate
that a corresponding notice will be sent by the other party to the
assignment.
(3) For purposes of this paragraph, the term ``assigned'' is defined
in Sec. 682.401(b)(8)(ii).
(4) The assignee, or the assignor on behalf of the assignee, shall
notify the guaranty agency that guaranteed the loan within 45 days of
the date the assignee acquires a legally enforceable right to receive
payment from the borrower on the loan of--
(i) The assignment; and
(ii) The name and address of the assignee, and the telephone number
of the assignee that can be used to obtain information about the
repayment of the loan.
(5) The requirements of this paragraph (e), as to borrower
notification, apply if the borrower is in a grace period or has entered
the repayment period.
(f)(1) Notwithstanding an error by the school or lender, a lender
shall follow the procedures in Sec. 682.412 whenever it receives
information that can be substantiated that the borrower, or the student
on whose behalf a parent has borrowed, has been convicted of, or has
pled nolo contendere or guilty to, a crime involving fraud in obtaining
title IV, HEA program assistance, provided false or erroneous
information or took actions that caused the student or borrower--
(i) To be ineligible for all or a portion of a loan made under this
part;
(ii) To receive a Stafford loan subject to payment of Federal
interest benefits as provided under Sec. 682.301, for which he or she
was ineligible; or
(iii) To receive loan proceeds that were not paid to the school or
repaid to the lender by or on behalf of a registered student who--
(A) The school notifies the lender under 34 CFR 668.21(a)(2)(ii) has
withdrawn or been expelled prior to the first day of classes for the
period of enrollment for which the loan was intended; or
(B) Failed to attend school during that period.
(2) For purposes of this section, the term ``guaranty agency'' in
Sec. 682.412(e) refers to the Secretary in the case of a Federal GSL
loan.
(g) If, during a period when the borrower is not delinquent, a
lender receives information indicating it does not know the borrower's
address, it may commence the skip-tracing activities specified in
Sec. 682.411(h).
(h) Notifying the borrower about a servicing change. If an FFEL
Program loan has not been assigned, but there is a change in the
identity of the party to
[[Page 39]]
whom the borrower must send subsequent payments or direct any
communications concerning the loan, the holder of the loan shall, no
later than 45 days after the date of the change, provide notice to the
borrower of the name, telephone number, and address of the party to whom
subsequent payments or communications must be sent. The requirements of
this paragraph apply if the borrower is in a grace period or has entered
the repayment period.
(i) A lender shall report enrollment and loan status information, or
any Title IV loan-related data required by the Secretary, to the
guaranty agency or to the Secretary, as applicable, by the deadline date
established by the Secretary.
(j)(1) Effective July 1, 2016, a loan holder is required to use the
official electronic database maintained by the Department of Defense,
to--
(i) Identify all borrowers who are military servicemembers and who
are eligible under Sec. 682.202(a)(8); and
(ii) Confirm the dates of the borrower's military service status and
begin, extend, or end, as applicable, the use of the SCRA interest rate
limit of six percent.
(2) The loan holder must compare its list of borrowers against the
database maintained by the Department of Defense at least monthly to
identify servicemembers who are in military service status for the
purpose of determining eligibility under Sec. 682.202(a)(8).
(3) A borrower may provide the loan holder with alternative evidence
of military service status to demonstrate eligibility if the borrower
believes that the information contained in the Department of Defense
database is inaccurate or incomplete. Acceptable alternative evidence
includes--
(i) A copy of the borrower's military orders; or
(ii) The certification of the borrower's military service from an
authorized official using a form approved by the Secretary.
(4)(i) When the loan holder determines that the borrower is eligible
under Sec. 682.202(a)(8), the loan holder must ensure the interest rate
on the borrower's loan does not exceed the SCRA interest rate limit of
six percent.
(ii) The loan holder must apply the SCRA interest rate limit of six
percent for the longest eligible period verified with the official
electronic database, or alternative evidence of military service status
received under paragraph (j)(3) of this section, using the combination
of evidence that provides the borrower with the earliest military
service start date and the latest military service end date.
(iii) In the case of a reservist, the loan holder must use the
reservist's notification date as the start date of the military service
period.
(5) When the loan holder applies the SCRA interest rate limit of six
percent to a borrower's loan, it must notify the borrower in writing
within 30 days that the interest rate on the loan has been reduced to
six percent during the borrower's period of military service.
(6)(i) For PLUS loans with an endorser, the loan holder must use the
official electronic database to begin, extend, or end, as applicable,
the SCRA interest rate limit of six percent on the loan based on the
borrower's or endorser's military service status, regardless of whether
the loan holder is currently pursuing the endorser for repayment of the
loan.
(ii) If both the borrower and the endorser are eligible for the SCRA
interest rate limit of six percent on a loan, the loan holder must use
the earliest military service start date of either party and the latest
military service end date of either party to begin, extend, or end, as
applicable, the SCRA interest rate limit.
(7)(i) For joint consolidation loans, the loan holder must use the
official electronic database to begin, extend, or end, as applicable,
the SCRA interest rate limit of six percent on the loan if either of the
borrowers is eligible for the SCRA interest rate limit under
Sec. 682.202(a)(8).
(ii) If both borrowers on a joint consolidation loan are eligible
for the SCRA interest rate limit of six percent on a loan, the loan
holder must use the earliest military service start date of either party
and the latest military service end date of either party to begin,
extend, or end, as applicable, the SCRA interest rate limit.
[[Page 40]]
(8) If the application of the SCRA interest rate limit of six
percent results in an overpayment on a loan that is subsequently paid in
full through consolidation, the underlying loan holder must return the
overpayment to the holder of the consolidation loan.
(9) For any other circumstances where application of the SCRA
interest rate limit of six percent results in an overpayment of the
remaining balance on the loan, the loan holder must refund the amount of
that overpayment to the borrower.
(10) For purposes of this section, the term ``military service''
means--
(i) In the case of a servicemember who is a member of the Army,
Navy, Air Force, Marine Corps, or Coast Guard--
(A) Active duty, meaning full-time duty in the active military
service of the United States. Such term includes full-time training
duty, annual training duty, and attendance, while in the active military
service, at a school designated as a service school by law or by the
Secretary of the military department concerned. Such term does not
include full-time National Guard duty.
(B) In the case of a member of the National Guard, including service
under a call to active service, which means service on active duty or
full-time National Guard duty, authorized by the President or the
Secretary of Defense for a period of more than 30 consecutive days for
purposes of responding to a national emergency declared by the President
and supported by Federal funds;
(ii) In the case of a servicemember who is a commissioned officer of
the Public Health Service or the National Oceanic and Atmospheric
Administration, active service; and
(iii) Any period during which a servicemember is absent from duty on
account of sickness, wounds, leave, or other lawful cause.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1080,
1082, 1085)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59
FR 22476, Apr. 29, 1994; 64 FR 18976, Apr. 16, 1999; 64 FR 58626, Oct.
29, 1999; 64 FR 58965, Nov. 1, 1999; 71 FR 45701, Aug. 9, 2006; 72 FR
62000, 62031, Nov. 1, 2007; 74 FR 55993, Oct. 29, 2009; 78 FR 65811,
Nov. 1, 2013; 80 FR 67237, Oct. 30, 2015]
Sec. 682.209 Repayment of a loan.
(a) Conversion of a loan to repayment status. (1) For a
Consolidation loan, the repayment period begins on the date the loan is
disbursed. The first payment is due within 60 days after the date the
loan is disbursed.
(2)(i) For a PLUS loan, the repayment period begins on the date of
the last disbursement made on the loan. Interest accrues and is due and
payable from the date of the first disbursement of the loan. The first
payment is due within 60 days after the date the loan is fully
disbursed.
(ii) For an SLS loan, the repayment period begins on the date the
loan is disbursed, or, if the loan is disbursed in multiple
installments, on the date of the last disbursement of the loan. Interest
accrues and is due and payable from the date of the first disbursement
of the loan. Except as provided in paragraph (a)(2)(iii), (a)(2)(iv),
and (a)(2)(v) of this section the first payment is due within 60 days
after the date the loan is fully disbursed.
(iii) For an SLS borrower who has not yet entered repayment on a
Stafford loan, the borrower may postpone payment, consistent with the
grace period on the borrower's Stafford loan.
(iv) If the lender first learns after the fact that an SLS borrower
has entered the repayment period, the repayment begins no later than 75
days after the date the lender learns that the borrower has entered the
repayment period.
(v) The lender may establish a first payment due date that is no
more than an additional 30 days beyond the period specified in
paragraphs (a)(2)(i)-(a)(2)(iv) of this section in order for the
[[Page 41]]
lender to comply with the required deadline contained in
Sec. 682.205(c)(1).
(3)(i) Except as provided in paragraph (a)(4) of this section, for a
Stafford loan the repayment period begins--
(A) For a borrower with a loan for which the applicable interest
rate is 7 percent per year, not less than 9 nor more than 12 months
following the date on which the borrower is no longer enrolled on at
least a half-time basis at an eligible school. The length of this grace
period is determined by the lender for loans made under the FISL
Program, and by the guaranty agency for loans guaranteed by the agency;
(B) For a borrower with a loan for which the initial applicable
interest rate is 8 or 9 percent per year, the day after 6 months
following the date on which the borrower is no longer enrolled on at
least a half-time basis at an institution of higher education;
(C) For a borrower with a loan with a variable interest rate, the
day after 6 months following the date on which the borrower is no longer
enrolled on at least a half-time basis at an institution of higher
education; and
(D) For a borrower with a loan for which the applicable interest
rate is fixed at 6.0 percent per year, 5.6 percent per year, or 6.8
percent per year, the day after 6 months following the date on which the
borrower is no longer enrolled on at least a half-time basis at an
institution of higher education.
(ii) The first payment on a Stafford loan is due on a date
established by the lender that is no more than--
(A) 60 days following the first day that the repayment period
begins;
(B) 60 days from the expiration of a deferment or forbearance
period;
(C) 60 days following the end of the post deferment grace period;
(D) If the lender first learns after the fact that the borrower has
entered the repayment period, no later than 75 days after the date the
lender learns that the borrower has entered the repayment period; or
(E) An additional 30 days beyond the periods specified in paragraphs
(a)(3)(ii)(A)-(a)(3)(ii)(D) of this section in order for the lender to
comply with the required deadlines contained in Sec. 682.205(a)(1).
(iii) When determining the date that the student was no longer
enrolled on at least a half-time basis, the lender must use a new date
it receives from a school, unless the lender has already disclosed
repayment terms to the borrower and the new date is within the same
month and year as the most recent date reported to the lender.
(4) For a borrower of a Stafford loan who is a correspondence
student, the grace period specified in paragraph (a)(3)(i) of this
section begins on the earliest of--
(i) The day after the borrower completes the program;
(ii) The day after withdrawal as determined pursuant to 34 CFR
668.22; or
(iii) 60 days following the last day for completing the program as
established by the school.
(5) For purposes of establishing the beginning of the repayment
period for Stafford and SLS loans, the grace periods referenced in
paragraphs (a)(2)(iii) and (a)(3)(i) of this section exclude any period
during which a borrower who is a member of a reserve component of the
Armed Forces named in section 10101 of title 10, United States Code is
called or ordered to active duty for a period of more than 30 days. Any
single excluded period may not exceed three years and includes the time
necessary for the borrower to resume enrollment at the next available
regular enrollment period. Any Stafford or SLS borrower who is in a
grace period when called or ordered to active duty as specified in this
paragraph is entitled to a full grace period upon completion of the
excluded period.
(6)(i) The repayment schedule may provide for substantially equal
installment payments or for installment payments that increase or
decrease in amount during the repayment period. If the loan has a
variable interest rate that changes annually, the lender may establish a
repayment schedule that--
(A) Provides for adjustments of the amount of the installment
payment to reflect annual changes in the variable interest rate; or
(B) Contains no provision for an adjustment of the amount of the
installment payment to reflect annual changes in the variable interest
rate,
[[Page 42]]
but requires the lender to grant a forbearance to the borrower (or
endorser, if applicable) for a period of up to 3 years of payments in
accordance with Sec. 682.211(i)(5) in cases where the effect of a
variable interest rate on a standard or graduated repayment schedule
would result in a loan not being repaid within the maximum repayment
term.
(ii) If a graduated or income-sensitive repayment schedule is
established, it may not provide for any single installment that is more
than three times greater than any other installment. An agreement as
specified in paragraph (c)(1)(ii) of this section is not required if the
schedule provides for less than the minimum annual payment amount
specified in paragraph (c)(1)(i) of this section.
(iii) Not more than six months prior to the date that the borrower's
first payment is due, the lender must offer the borrower a choice of a
standard, income-sensitive, income-based, graduated, or, if applicable,
an extended repayment schedule.
(iv) Except in the case of an income-based repayment schedule, the
repayment schedule must require that each payment equal at least the
interest that accrues during the interval between scheduled payments.
(v) The lender shall require the borrower to repay the loan under a
standard repayment schedule described in paragraph (a)(6)(vi) of this
section if the borrower--
(A) Does not select an income-sensitive, income-based, graduated,
or, if applicable, an extended repayment schedule within 45 days after
being notified by the lender to choose a repayment schedule;
(B) Chooses an income-sensitive repayment schedule, but does not
provide the documentation requested by the lender under paragraph
(a)(6)(viii)(C) of this section within the time period specified by the
lender; or
(C) Chooses an income-based repayment schedule, but does not provide
the income documentation requested by the lender under
Sec. 682.215(e)(1)(i) through (e)(1)(iii) within the time period
specified by the lender.
(vi) Under a standard repayment schedule, the borrower is scheduled
to pay either--
(A) The same amount for each installment payment made during the
repayment period, except that the borrower's final payment may be
slightly more or less than the other payments; or
(B) An installment amount that will be adjusted to reflect annual
changes in the loan's variable interest rate.
(vii) Under a graduated repayment schedule--
(A)(1) The amount of the borrower's installment payment is scheduled
to change (usually by increasing) during the course of the repayment
period; or
(2) If the loan has a variable interest rate that changes annually,
the lender may establish a repayment schedule that may have adjustments
in the payment amount as provided under paragraph (a)(6)(i) of this
section; and
(B) An agreement as specified in paragraph (c)(1)(ii) of this
section is not required if the schedule provides for less than the
minimum annual payment amount specified in paragraph (c)(1)(i) of this
section.
(viii) Under an income-sensitive repayment schedule--
(A)(1) The amount of the borrower's installment payment is adjusted
annually, based on the borrower's expected total monthly gross income
received by the borrower from employment and from other sources during
the course of the repayment period; or
(2) If the loan has a variable interest rate that changes annually,
the lender may establish a repayment schedule that may have adjustments
in the payment amount as provided under paragraph (a)(6)(i) of this
section; and
(B) In general, the lender shall request the borrower to inform the
lender of his or her income no earlier than 90 days prior to the due
date of the borrower's initial installment payment and subsequent annual
payment adjustment under an income-sensitive repayment schedule. The
income information must be sufficient for the lender to make a
reasonable determination of what the borrower's payment amount should
be. If the lender receives late notification that the borrower has
dropped below half-time enrollment status at a school, the lender may
request that income information earlier than 90 days prior to the due
[[Page 43]]
date of the borrower's initial installment payment;
(C) If the borrower reports income to the lender that the lender
considers to be insufficient for establishing monthly installment
payments that would repay the loan within the applicable maximum
repayment period, the lender shall require the borrower to submit
evidence showing the amount of the most recent total monthly gross
income received by the borrower from employment and from other sources
including, if applicable, pay statements from employers and
documentation of any income received by the borrower from other parties;
(D) The lender shall grant a forbearance to the borrower (or
endorser, if applicable) for a period of up to 5 years of payments in
accordance with Sec. 682.211(i)(5) in cases where the effect of
decreased installment amounts paid under an income-sensitive repayment
schedule would result in a loan not being repaid within the maximum
repayment term; and
(E) The lender shall inform the borrower that the loan must be
repaid within the time limits specified under paragraph (a)(7) of this
section.
(ix) Under an extended repayment schedule, a new borrower whose
total outstanding principal and interest in FFEL loans exceed $30,000
may repay the loan on a fixed annual repayment amount or a graduated
repayment amount for a period that may not exceed 25 years. For purposes
of this section, a ``new borrower'' is an individual who has no
outstanding principal or interest balance on an FFEL Program loan as of
October 7, 1998, or on the date he or she obtains an FFEL Program loan
after October 7, 1998.
(x) Under an income-based repayment schedule, the borrower repays
the loan in accordance with Sec. 682.215.
(xi) A borrower may request a change in the repayment schedule on a
loan. The lender must permit the borrower to change the repayment
schedule no less frequently than annually, or at any time in the case of
a borrower in an income-based repayment plan.
(xii) For purposes of this section, a lender shall, to the extent
practicable require that all FFEL loans owed by a borrower to the lender
be combined into one account and repaid under one repayment schedule. In
that event, the word ``loan'' in this section shall mean all of the
borrower's loans that were combined by the lender into that account.
(7)(i) Subject to paragraphs (a)(7)(ii) through (iv) of this
section, and except as provided in paragraph (a)(6)(ix) a lender shall
allow a borrower at least 5 years, but not more than 10 years, or 25
years under an extended repayment plan to repay a Stafford, SLS, or PLUS
loan, calculated from the beginning of the repayment period. Except in
the case of a FISL loan for a period of enrollment beginning on or after
July 1, 1986, the lender shall require a borrower to fully repay a FISL
loan within 15 years after it is made.
(ii) If the borrower receives an authorized deferment or is granted
forbearance, as described in Sec. 682.210 or Sec. 682.211 respectively,
the periods of deferment or forbearance are excluded from determinations
of the 5-, 10-, and 15- and 25-year periods, and from the 10-, 12-, 15-,
20-, 25-, and 30-year periods for repayment of a Consolidation loan
pursuant to Sec. 682.209(h).
(iii) If the minimum annual repayment required in paragraph (c) of
this section would result in complete repayment of the loan in less than
5 years, the borrower is not entitled to the full 5-year period.
(iv) The borrower may, prior to the beginning of the repayment
period, request and be granted by the lender a repayment period of less
than 5 years. Subject to paragraph (a)(7)(iii) of this section, a
borrower who makes such a request may notify the lender at any time to
extend the repayment period to a minimum of 5 years.
(8) If, with respect to the aggregate of all loans held by a lender,
the total payment made by a borrower for a monthly or similar payment
period would not otherwise be a multiple of five dollars, except in the
case of payments made under an income-based repayment plan, the lender
may round that periodic payment to the next highest whole dollar amount
that is a multiple of five dollars.
[[Page 44]]
(b) Payment application and prepayment. (1) Except in the case of
payments made under an income-based repayment plan, the lender may
credit the entire payment amount first to any late charges accrued or
collection costs and then to any outstanding interest and then to
outstanding principal.
(2)(i) The borrower may prepay the whole or any part of a loan at
any time without penalty.
(ii) If the prepayment amount equals or exceeds the monthly payment
amount under the repayment schedule established for the loan, the lender
shall apply the prepayment to future installments by advancing the next
payment due date, unless the borrower requests otherwise. The lender
must either inform the borrower in advance using a prominent statement
in the borrower's coupon book or billing statement that any additional
full payment amounts submitted without instructions to the lender as to
their handling will be applied to future scheduled payments with the
borrower's next scheduled payment due date advanced consistent with the
number of additional payments received, or provide a notification to the
borrower after the payments are received informing the borrower that the
payments have been so applied and the date of the borrower's next
scheduled payment due date. Information related to next scheduled
payment due date need not be provided to borrowers making such
prepayments while in an in-school, grace, deferment, or forbearance
period when payments are not due.
(c) Minimum annual payment. (1)(i) Subject to paragraph (c)(1)(ii)
of this section and except as otherwise provided by a graduated, income-
sensitive, extended, or income-based repayment plan selected by the
borrower, during each year of the repayment period, a borrower's total
payments to all holders of the borrower's FFEL Program loans must total
at least $600 or the unpaid balance of all loans, including interest,
whichever amount is less.
(ii) If the borrower and the lender agree, the amount paid may be
less.
(2) The provisions of paragraphs (c)(1) (i) and (ii) of this section
may not result in an extension of the maximum repayment period unless
forbearance as described in Sec. 682.211, or deferment described in
Sec. 682.210, has been approved.
(d) Combined repayment of a borrower's student PLUS and SLS loans
held by a lender. (1) A lender may, at the request of a student
borrower, combine the borrower's, student PLUS and SLS loans held by it
into a single repayment schedule.
(2) The repayment period on the loans included in the combined
repayment schedule must be calculated based on the beginning of
repayment of the most recent included loan.
(3) The interest rate on the loans included in the new combined
repayment schedule must be the weighted average of the rates of all
included loans.
(e) Consolidation loans. (1) For a Consolidation loan, the repayment
period begins on the day of disbursement, with the first payment due
within 60 days after the date of disbursement.
(2) If the sum of the amount of the Consolidation loan and the
unpaid balance on other student loans to the applicant--
(i) Is less than $7,500, the borrower shall repay the Consolidation
loan in not more than 10 years;
(ii) Is equal to or greater than $7,500 but less than $10,000, the
borrower shall repay the Consolidation loan in not more than 12 years;
(iii) Is equal to or greater than $10,000 but less than $20,000, the
borrower shall repay the Consolidation loan in not more than 15 years;
(iv) Is equal to or greater than $20,000 but less than $40,000, the
borrower shall repay the Consolidation loan in not more than 20 years;
(v) Is equal to or greater than $40,000 but less than $60,000, the
borrower shall repay the Consolidation loan in not more than 25 years;
or
(vi) Is equal to or greater than $60,000, the borrower shall repay
the Consolidation loan in not more than 30 years.
(3) For the purpose of paragraph (e)(2) of this section, the unpaid
balance on other student loans--
(i) May not exceed the amount of the Consolidation loan; and
(ii) With the exception of the defaulted title IV loans on which the
borrower has made satisfactory repayment
[[Page 45]]
arrangements with the holder of the loan, does not include the unpaid
balance on any defaulted loans.
(4) A repayment schedule for a Consolidation loan--
(i) Must be established by the lender;
(ii) Except in the case of an income-based repayment schedule, must
require that each payment equal at least the interest that accrues
during the interval between scheduled payments.
(5) Upon receipt of the proceeds of a loan made under paragraph
(e)(2) of this section, the holder of the underlying loan shall promptly
apply the proceeds to discharge fully the borrower's obligation on the
underlying loan, and provide the consolidating lender with the holder's
written certification that the borrower's obligation on the underlying
loan has been fully discharged.
(f) Treatment by a lender of borrowers' title IV, HEA program funds
received from schools if the borrower withdraws. (1) A lender shall
treat a refund or a return of title IV, HEA program funds under
Sec. 668.22 when a student withdraws received by the lender from a
school as a credit against the principal amount owed by the borrower on
the borrower's loan.
(2)(i) If a lender receives a refund or a return of title IV, HEA
program funds under Sec. 668.22 when a student withdraws from a school
on a loan that is no longer held by that lender, or that has been
discharged by another lender by refinancing or by a Consolidation loan,
the lender must transmit the amount of the payment, within 30 days of
its receipt, to the lender to whom it assigned the loan, or to the
lender that discharged the prior loan, with an explanation of the source
of the payment.
(ii) Upon receipt of a refund or a return of title IV, HEA program
funds transmitted under paragraph (f)(2)(i) of this section, the holder
of the loan promptly must provide written notice to the borrower that
the holder has received the return of title IV, HEA program funds.
(g) Any lender holding a loan is subject to all claims and defenses
that the borrower could assert against the school with respect to that
loan if--
(1) The loan was made by the school or a school-affiliated
organization;
(2) The lender who made the loan provided an improper inducement, as
described in paragraph (5)(i) of the definition of Lender in
Sec. 682.200(b), to the school or any other party in connection with the
making of the loan;
(3) The school refers borrowers to the lender; or
(4) The school is affiliated with the lender by common control,
contract, or business arrangement.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1082,
1085)
[57 FR 60323, Dec. 18, 1992]
Editorial Note: For Federal Register citations affecting
Sec. 682.209, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
Sec. 682.210 Deferment.
(a) General. (1)(i) A borrower is entitled to have periodic
installment payments of principal deferred during authorized periods
after the beginning of the repayment period, pursuant to paragraph (b)
and paragraphs (s) through (v) of this section.
(ii) With the exception of a deferment authorized under paragraph
(o) of this section, a borrower may continue to receive a specific type
of deferment that is limited to a maximum period of time only if the
total amount of time that the borrower has received the deferment does
not exceed the maximum time period allowed for the deferment.
(2)(i) For a loan made before October 1, 1981, the borrower is also
entitled to have periodic installments of principal deferred during the
six-month period (post-deferment grace period) that begins after the
completion of each deferment period or combination of those periods,
except as provided in paragraph (a)(2)(ii) of this section.
(ii) Once a borrower receives a post-deferment grace period
following an unemployment deferment, as described in paragraph (b)(1)(v)
of this section, the borrower does not qualify for additional post-
deferment grace periods following subsequent unemployment deferments.
(3)(i) Interest accrues and is paid by--
[[Page 46]]
(A) The Secretary during the deferment period for a subsidized
Stafford loan and for all or a portion of a Consolidation loan that
qualifies for interest benefits under Sec. 682.301; or
(B) The borrower during the deferment period and, as applicable, the
post-deferment grace period, on all other loans.
(ii) A borrower who is responsible for payment of interest during a
deferment period must be notified by the lender, at or before the time
the deferment is granted, that the borrower has the option to pay the
accruing interest or cancel the deferment and continue paying on the
loan. The lender must also provide information, including an example, on
the impact of capitalization of accrued, unpaid interest on loan
principal, and on the total amount of interest to be paid over the life
of the loan.
(4) As a condition for receiving a deferment, except for purposes of
paragraphs (c)(1)(ii), (iii), and (iv) of this section, the borrower, or
the borrower's representative for purposes of paragraphs (i) and (t) of
this section, must request the deferment, and provide the lender with
all information and documents required to establish eligibility for a
specific type of deferment.
(5) An authorized deferment period begins on the date that the
holder determines is the date that the condition entitling the borrower
to the deferment first existed, except that an initial unemployment
deferment as described in paragraph (h)(2) of this section cannot begin
more than 6 months before the date the holder receives a request and
documentation required for the deferment.
(6) An authorized deferment period ends on the earlier of--
(i) The date when the condition establishing the borrower's
eligibility for the deferment ends;
(ii) Except as provided in paragraph (a)(6)(iv) of this section, the
date on which, as certified by an authorized official, the borrower's
eligibility for the deferment is expected to end;
(iii) Except as provided in paragraph (a)(6)(iv) of this section,
the expiration date of the period covered by any certification required
by this section to be obtained for the deferment;
(iv) In the case of an in-school deferment, the student's
anticipated graduation date as certified by an authorized official of
the school; or
(v) The date when the condition providing the basis for the
borrower's eligibility for the deferment has continued to exist for the
maximum amount of time allowed for that type of deferment.
(7) A lender may not deny a borrower a deferment to which the
borrower is entitled, even though the borrower may be delinquent, but
not in default, in making required installment payments. The 270- or
330-day period required to establish default does not run during the
deferment and post-deferment grace periods. Unless the lender has
granted the borrower forbearance under Sec. 682.211, when the deferment
and, if applicable, the post-deferment grace period expire, a borrower
resumes any delinquency status that existed when the deferment period
began.
(8) A borrower whose loan is in default is not eligible for a
deferment on that loan, unless the borrower has made payment
arrangements acceptable to the lender prior to the payment of a default
claim by a guaranty agency.
(9) The borrower promptly must inform the lender when the condition
entitling the borrower to a deferment no longer exists.
(10) Authorized deferments are described in paragraph (b) of this
section. Specific requirements for each deferment are set forth in
paragraphs (c) through (s) of this section.
(11) If two individuals are jointly liable for repayment of a PLUS
loan or a Consolidation loan, the lender shall grant a request for
deferment if both individuals simultaneously meet the requirements of
this section for receiving the same, or different deferments.
(b) Authorized deferments for borrowers prior to July 1, 1993--(1)
For all borrowers who are not new borrowers on or after July 1, 1993.
Deferment is authorized for a FFEL borrower during any period when the
borrower is--
(i) Except as provided in paragraph (b)(4) of this section, engaged
in full-
[[Page 47]]
time study at a school in accordance with paragraph (c) of this section;
(ii) Engaged in a course of study under an eligible graduate
fellowship program in accordance with paragraph (d) of this section;
(iii) Engaged in a rehabilitation training program for disabled
individuals in accordance with paragraph (e) of this section;
(iv) Temporarily totally disabled in accordance with paragraph (f)
of this section, or unable to secure employment because the borrower is
caring for a spouse or other dependent who is disabled and requires
continuous nursing or similar services for up to three years in
accordance with paragraph (g) of this section; or
(v) Conscientiously seeking, but unable to find, full-time
employment in the United States, for up to two years, in accordance with
paragraph (h) of this section.
(2) For all Stafford and SLS borrowers who are not new borrowers on
or after July 1, 1993, and for parent PLUS loans made before August 15,
1983. Deferment is authorized during any period when the borrower is--
(i) On active duty status in the United States Armed Forces in
accordance with paragraph (i) of this section, or an officer in the
Commissioned Corps of the United States Public Health Service in
accordance with paragraph (j) of this section, for up to three years
(including any period during which the borrower received a deferment
authorized under paragraph (b)(3)(ii) of this section);
(ii) A full-time volunteer under the Peace Corps Act, for up to
three years, in accordance with paragraph (k) of this section;
(iii) A full-time volunteer under title I of the Domestic Volunteer
Service Act of 1973 (ACTION programs), for up to three years, in
accordance with paragraph (l) of this section;
(iv) A full-time volunteer for a tax-exempt organization, for up to
three years, in accordance with paragraph (m) of this section; or
(v) Engaged in an internship or residency program, in accordance
with paragraph (n) of this section, for up to two years (including any
period during which the borrower received a deferment authorized under
paragraph (b)(3)(iv) of this section).
(3) For new Stafford or SLS borrowers on or after July 1, 1987 but
before July 1, 1993. Deferment is authorized--
(i) In accordance with paragraph (o) of this section, if the
borrower has been enrolled on at least a half-time basis at an
institution of higher education during the six months preceding the
beginning of the deferment, for a period of up to six months during
which the borrower is--
(A)(1) Pregnant;
(2) Caring for his or her newborn child; or
(3) Caring for a child immediately following the placement of the
child with the borrower before or immediately following adoption; and
(B) Not attending a school or gainfully employed;
(ii) During a period when the borrower is on active duty status in
the National Oceanic and Atmospheric Administration Corps, for up to
three years, in accordance with paragraph (p) of this section,
(including any period during which the borrower received a deferment
authorized under paragraph (b)(2)(i) of this section);
(iii) During a period of up to three years when the borrower is
serving as a full-time teacher in a public or non-profit private
elementary or secondary school in a teacher shortage area designated by
the Secretary under paragraph (q) of this section;
(iv) During a period when the borrower is engaged in an internship
or residency program, for up to two years, in accordance with paragraph
(n) of this section, (including any period during which the borrower
received a deferment authorized under paragraph (b)(2)(v) of this
section); or
(v) When a mother who has preschool-age children (i.e., children who
have not enrolled in first grade) and who is earning not more than $1
per hour above the Federal minimum wage, for up to 12 months of
employment, and who began that full-time employment within one year of
entering or re-entering the work force, in accordance with paragraph (r)
of this section. Full-time employment involves at least 30 hours of work
a week and it is expected to last at least 3 months.
[[Page 48]]
(4) For new Stafford or SLS borrowers on or after July 1, 1987.
Deferment is authorized during periods when the borrower is engaged in
at least half-time study at a school in accordance with paragraph (b) of
this section.
(5) For new parent PLUS borrowers on or after July 1, 1987 and
before July 1, 1993. Deferment is authorized during any period when a
student on whose behalf the parent borrower received the loan--
(i) Is not independent as defined in section 480(d) of the Act; and
(ii) Meets the conditions and provides the required documentation,
for any of the deferments described in paragraphs (b)(1)(i) through
(iii) and (b)(4) of this section.
(6) Definition of a new borrower. For purposes of paragraphs (b)(3),
(b)(4), and (b)(5) of this section, a ``new borrower'' with respect to a
loan is a borrower who, on the date he or she signs the promissory note,
has no outstanding balance on--
(i) A Stafford, SLS, or PLUS loan made prior to July 1, 1987 for a
period of enrollment beginning prior to July 1, 1987; or
(ii) A Consolidation loan that repaid a loan made prior to July 1,
1987 and for a period of enrollment beginning prior to July 1, 1987.
(c) In-school deferment. (1) Except as provided in paragraph (c)(5)
of this section, the lender processes a deferment for full-time study or
half-time study at a school, when--
(i) The borrower submits a request and supporting documentation for
a deferment;
(ii) The lender receives information from the borrower's school
about the borrower's eligibility in connection with a new loan;
(iii) The lender receives student status information from the
borrower's school, either directly or indirectly, indicating that the
borrower's enrollment status supports eligibility for a deferment; or
(iv) The lender confirms a borrower's half-time enrollment status
through the use of the National Student Loan Data System if requested to
do so by the school the borrower is attending.
(2) The lender must notify the borrower that a deferment has been
granted based on paragraphs (c)(1)(ii), (iii), or (iv) of this section
and that the borrower has the option to cancel the deferment and
continue paying on the loan.
(3) The lender must consider a deferment granted on the basis of a
certified loan application or other information certified by the school
to cover the period lasting until the anticipated graduation date
appearing on the application, and as updated by notice or Student Status
Confirmation Report update to the lender from the school or guaranty
agency, unless and until it receives notice that the borrower has ceased
the level of study (i.e., full-time or half-time) required for the
deferment.
(4) In the case of a FFEL borrower, the lender shall treat a
certified loan application or other form certified by the school or for
multiple holders of a borrower's loans, shared data from the Student
Status Confirmation Report, as sufficient documentation for an in-school
student deferment for any outstanding FFEL loan previously made to the
borrower that is held by the lender.
(5) A borrower serving in a medical internship or residency program,
except for an internship in dentistry, is prohibited from receiving or
continuing a deferment on a Stafford, or a PLUS (unless based on the
dependent's status) SLS, or Consolidation loan under paragraph (c) of
this section.
(d) Graduate fellowship deferment. (1) To qualify for a deferment
for study in a graduate fellowship program, a borrower shall provide the
lender with a statement from an authorized official of the borrower's
fellowship program certifying--
(i) That the borrower holds at least a baccalaureate degree
conferred by an institution of higher education;
(ii) That the borrower has been accepted or recommended by an
institution of higher education for acceptance on a full-time basis into
an eligible graduate fellowship program; and
(iii) The borrower's anticipated completion date in the program.
(2) For purposes of paragraph (d)(1) of this section, an eligible
graduate fellowship program is a fellowship program that--
[[Page 49]]
(i) Provides sufficient financial support to graduate fellows to
allow for full-time study for at least six months;
(ii) Requires a written statement from each applicant explaining the
applicant's objectives before the award of that financial support;
(iii) Requires a graduate fellow to submit periodic reports,
projects, or evidence of the fellow's progress; and
(iv) In the case of a course of study at a foreign university,
accepts the course of study for completion of the fellowship program.
(e) Rehabilitation training program deferment. (1) To qualify for a
rehabilitation training program deferment, a borrower shall provide the
lender with a statement from an authorized official of the borrower's
rehabilitation training program certifying that the borrower is either
receiving, or is scheduled to receive, services under an eligible
rehabilitation training program for disabled individuals.
(2) For purposes of paragraph (e)(1) of this section, an eligible
rehabilitation training program for disabled individuals is a program
that--
(i) Is licensed, approved, certified, or otherwise recognized as
providing rehabilitation training to disabled individuals by--
(A) A State agency with responsibility for vocational rehabilitation
programs;
(B) A State agency with responsibility for drug abuse treatment
programs;
(C) A State agency with responsibility for mental health services
program;
(D) A State agency with responsibility for alcohol abuse treatment
programs; or
(E) The Department of Veterans Affairs; and
(ii) Provides or will provide the borrower with rehabilitation
services under a written plan that--
(A) Is individualized to meet the borrower's needs;
(B) Specifies the date on which the services to the borrower are
expected to end; and
(C) Is structured in a way that requires a substantial commitment by
the borrower to his or her rehabilitation. The Secretary considers a
substantial commitment by the borrower to be a commitment of time and
effort that normally would prevent an individual from engaging in full-
time employment, either because of the number of hours that must be
devoted to rehabilitation or because of the nature of the
rehabilitation. For the purpose of this paragraph, full-time employment
involves at least 30 hours of work per week and is expected to last at
least three months.
(f) Temporary total disability deferment. (1) To qualify for a
temporary total disability deferment, a borrower shall provide the
lender with a statement from a physician, who is a doctor of medicine or
osteopathy and is legally authorized to practice, certifying that the
borrower is temporarily totally disabled as defined in Sec. 682.200(b).
(2) A borrower is not considered temporarily totally disabled on the
basis of a condition that existed before he or she applied for the loan,
unless the condition has substantially deteriorated so as to render the
borrower temporarily totally disabled, as substantiated by the statement
required under paragraph (f)(1) of this section, after the borrower
submitted the loan application.
(3) A lender may not grant a deferment based on a single
certification under paragraph (f)(1) of this section beyond the date
that is six months after the date of certification.
(g) Dependent's disability deferment. (1) To qualify for a deferment
given to a borrower whose spouse or other dependent requires continuous
nursing or similar services for a period of at least 90 days, the
borrower shall provide the lender with a statement--
(i) From a physician, who is a doctor of medicine or osteopathy and
is legally authorized to practice, certifying that the borrower's spouse
or dependent requires continuous nursing or similar services for a
period of at least 90 days; and
(ii) From the borrower, certifying that the borrower is unable to
secure full-time employment because he or she is providing continuous
nursing or similar services to the borrower's spouse or other dependent.
For the purpose of this paragraph, full-time employment involves at
least 30 hours of
[[Page 50]]
work per week and is expected to last at least three months.
(2) A lender may not grant a deferment based on a single
certification under paragraph (g)(1) of this section beyond the date
that is six months after the date of the certification.
(h) Unemployment deferment. (1) A borrower qualifies for an
unemployment deferment by providing evidence of eligibility for
unemployment benefits to the lender.
(2) A borrower also qualifies for an unemployment deferment by
providing to the lender a written certification, or an equivalent as
approved by the Secretary, that--
(i) The borrower has registered with a public or private employment
agency, if one is available to the borrower within a 50-mile radius of
the borrower's current address; and
(ii) For all requests beyond the initial request, the borrower has
made at least six diligent attempts during the preceding 6-month period
to secure full-time employment.
(3) For purposes of obtaining an unemployment deferment under
paragraph (h)(2) of this section, the following rules apply:
(i) A borrower may qualify for an unemployment deferment whether or
not the borrower has been previously employed.
(ii) An unemployment deferment is not justified if the borrower
refuses to seek or accept employment in kinds of positions or at salary
and responsibility levels for which the borrower feels overqualified by
virtue of education or previous experience.
(iii) Full-time employment involves at least 30 hours of work a week
and is expected to last at least three months.
(iv) The initial period of unemployment deferment may be granted for
a period of unemployment beginning up to 6 months before the date the
lender receives the borrower's request, and may be granted for up to 6
months after that date.
(4) A lender may not grant an unemployment deferment beyond the date
that is 6 months after the date the borrower provides evidence of the
borrower's eligibility for unemployment insurance benefits under
paragraph (h)(1) of this section or the date the borrower provides the
written certification, or an approved equivalent, under paragraph (h)(2)
of this section.
(i) Military deferment. (1) To qualify for a military deferment, a
borrower or a borrower's representative shall provide the lender with--
(i) A written statement from the borrower's commanding or personnel
officer certifying--
(A) That the borrower is on active duty in the Armed Forces of the
United States;
(B) The date on which the borrower's service began; and
(C) The date on which the borrower's service is expected to end; or
(ii)(A) A copy of the borrower's official military orders; and
(B) A copy of the borrower's military identification.
(2) For the purpose of this section, the Armed Forces means the
Army, Navy, Air Force, Marine Corps, and the Coast Guard.
(3) A borrower enlisted in a reserve component of the Armed Forces
may qualify for a military deferment only for service on a full-time
basis that is expected to last for a period of at least one year in
length, as evidenced by official military orders, unless an order for
national mobilization of reservists is issued.
(4) A borrower enlisted in the National Guard qualifies for a
military deferment only while the borrower is on active duty status as a
member of the U.S. Army or Air Force Reserves, and meets the
requirements of paragraph (i)(3) of this section.
(5) A lender that grants a military service deferment based on a
request from a borrower's representative must notify the borrower that
the deferment has been granted and that the borrower has the option to
cancel the deferment and continue to make payments on the loan. The
lender may also notify the borrower's representative of the outcome of
the deferment request.
(j) Public Health Service deferment. To qualify for a Public Health
Service deferment, the borrower shall provide the lender with a
statement from an authorized official of the United States Public Health
Service (USPHS) certifying--
[[Page 51]]
(1) That the borrower is engaged in full-time service as an officer
in the Commissioned Corps of the USPHS;
(2) The date on which the borrower's service began; and
(3) The date on which the borrower's service is expected to end.
(k) Peace Corps deferment. (1) To qualify for a deferment for
service under the Peace Corps Act, the borrower shall provide the lender
with a statement from an authorized official of the Peace Corps
certifying--
(i) That the borrower has agreed to serve for a term of at least one
year;
(ii) The date on which the borrower's service began; and
(iii) The date on which the borrower's service is expected to end.
(2) The lender must grant a deferment for the borrower's full term
of service in the Peace Corps, not to exceed three years.
(l) Full-time volunteer service in the ACTION programs. To qualify
for a deferment as a full-time paid volunteer in an ACTION program, the
borrower shall provide the lender with a statement from an authorized
official of the program certifying--
(1) That the borrower has agreed to serve for a term of at least one
year;
(2) The date on which the borrower's service began; and
(3) The date on which the borrower's service is expected to end.
(m) Deferment for full-time volunteer service for a tax-exempt
organization. To qualify for a deferment as a full-time paid volunteer
for a tax-exempt organization, a borrower shall provide the lender with
a statement from an authorized official of the volunteer program
certifying--
(1) That the borrower--
(i) Serves in an organization that has obtained an exemption from
taxation under section 501(c)(3) of the Internal Revenue Code of 1986;
(ii) Provides service to low-income persons and their communities to
assist them in eliminating poverty and poverty-related human, social,
and environmental conditions;
(iii) Does not receive compensation that exceeds the rate prescribed
under section 6 of the Fair Labor Standards Act of 1938 (the Federal
minimum wage), except that the tax-exempt organization may provide
health, retirement, and other fringe benefits to the volunteer that are
substantially equivalent to the benefits offered to other employees of
the organization;
(iv) Does not, as part of his or her duties, give religious
instruction, conduct worship services, engage in religious
proselytizing, or engage in fund-raising to support religious
activities; and
(v) Has agreed to serve on a full-time basis for a term of at least
one year;
(2) The date on which the borrower's service began; and
(3) The date on which the borrower's service is expected to end.
(n) Internship or residency deferment. (1) To qualify for an
internship or residency deferment under paragraph (b)(3)(iv) of this
section, the borrower shall provide the lender with a statement from an
authorized official of the organization with which the borrower is
undertaking the internship or residency program certifying--
(i) That the internship or residency program is a supervised
training program that requires the borrower to hold at least a
baccalaureate degree prior to acceptance into the program;
(ii) That, except for a borrower that provides the statement from a
State official described in paragraph (n)(2) of this section, the
internship or residency program leads to a degree or certificate awarded
by an institution of higher education, a hospital, or a health care
facility that offers postgraduate training;
(iii) That the borrower has been accepted into the internship or
residency program; and
(iv) The anticipated dates on which the borrower will begin and
complete the internship or residency program, or, in the case of a
borrower providing the statement described in paragraph (n)(2) of this
section, the anticipated date on which the borrower will begin and
complete the minimum period of participation in the internship program
that the State requires be completed before an individual may be
certified for professional practice or service.
(2) For a borrower who does not provide a statement certifying to
the matters set forth in paragraph (n)(1)(ii) of this section to qualify
for an internship
[[Page 52]]
deferment under paragraph (b)(3)(iv) of this section, the borrower shall
provide the lender with a statement from an official of the appropriate
State licensing agency certifying that the internship or residency
program, or a portion thereof, is required to be completed before the
borrower may be certified for professional practice or service.
(o) Parental-leave deferment. (1) To qualify for the parental-leave
deferment described in paragraph (b)(3)(i) of this section, the borrower
shall provide the lender with--
(i) A statement from an authorized official of a participating
school certifying that the borrower was enrolled on at least a half-time
basis during the six months preceding the beginning of the deferment
period;
(ii) A statement from the borrower certifying that the borrower--
(A) Is pregnant, caring for his or her newborn child, or caring for
a child immediately following the placement of the child with the
borrower in connection with an adoption;
(B) Is not, and will not be, attending school during the deferment
period; and
(C) Is not, and will not be, engaged in full-time employment during
the deferment period; and
(iii) A physician's statement demonstrating the existence of the
pregnancy, a birth certificate, or a statement from the adoption agency
official evidencing a pre-adoption placement.
(2) For purposes of paragraph (o)(1)(ii)(C) of this section, full-
time employment involves at least 30 hours of work per week and is
expected to last at least three months.
(p) NOAA deferment. To qualify for a National Oceanic and
Atmospheric Administration (NOAA) deferment, the borrower shall provide
the lender with a statement from an authorized official of the NOAA
corps, certifying--
(1) That the borrower is on active duty service in the NOAA corps;
(2) The date on which the borrower's service began; and
(3) The date on which the borrower's service is expected to end.
(q) Targeted teacher deferment. (1) To qualify for a targeted
teacher deferment under paragraph (b)(3)(iii) of this section, the
borrower, for each school year of service for which a deferment is
requested, must provide to the lender--
(i) A statement by the chief administrative officer of the public or
nonprofit private elementary or secondary school in which the borrower
is teaching, certifying that the borrower is employed as a full-time
teacher; and
(ii) A certification that he or she is teaching in a teacher
shortage area designated by the Secretary as provided in paragraphs (q)
(5) through (7) of this section, as described in paragraph (q)(2) of
this section.
(2) In order to satisfy the requirement for certification that a
borrower is teaching in a teacher shortage area designated by the
Secretary, a borrower must do one of the following:
(i) If the borrower is teaching in a State in which the Chief State
School Officer has complied with paragraph (q)(3) of this section and
provides an annual listing of designated teacher shortage areas to the
State's chief administrative officers whose schools are affected by the
Secretary's designations, the borrower may obtain a certification that
he or she is teaching in a teacher shortage area from his or her
school's chief administrative officer.
(ii) If a borrower is teaching in a State in which the Chief State
School Officer has not complied with paragraph (q)(3) of this section or
does not provide an annual listing of designated teacher shortage areas
to the State's chief administrative officers whose schools are affected
by the Secretary's designations, the borrower must obtain certification
that he or she is teaching in a teacher shortage area from the Chief
State School Officer for the State in which the borrower is teaching.
(3) In the case of a State in which borrowers wish to obtain
certifications as provided for in paragraph (q)(2)(i) of this section,
the State's Chief State School Officer must first have notified the
Secretary, by means of a one-time written assurance, that he or she
provides annually to the State's chief administrative officers whose
schools are affected by the Secretary's designations and the guaranty
agency for that State, a listing of the teacher shortage areas
designated by the Secretary as
[[Page 53]]
provided for in paragraphs (q) (5) through (7) of this section.
(4) If a borrower who receives a deferment continues to teach in the
same teacher shortage area as that in which he or she was teaching when
the deferment was originally granted, the borrower shall, at the
borrower's request, continue to receive the deferment for those
subsequent years, up to the three-year maximum deferment period, even if
his or her position does not continue to be within an area designated by
the Secretary as a teacher shortage area in those subsequent years. To
continue to receive the deferment in a subsequent year under this
paragraph, the borrower shall provide the lender with a statement by the
chief administrative officer of the public or nonprofit private
elementary or secondary school that employs the borrower, certifying
that the borrower continues to be employed as a full-time teacher in the
same teacher shortage area for which the deferment was received for the
previous year.
(5) For purposes of this section a teacher shortage area is--
(i)(A) A geographic region of the State in which there is a shortage
of elementary or secondary school teachers; or
(B) A specific grade level or academic, instructional, subject-
matter, or discipline classification in which there is a statewide
shortage of elementary or secondary school teachers; and
(ii) Designated by the Secretary under paragraphs (q)(6) or (q)(7)
of this section.
(6)(i) In order for the Secretary to designate one or more teacher
shortage areas in a State for a school year, the Chief State School
Officer shall by January 1 of the calendar year in which the school year
begins, and in accordance with objective written standards, propose
teacher shortage areas to the Secretary for designation. With respect to
private nonprofit schools included in the recommendation, the Chief
State School Officer shall consult with appropriate officials of the
private nonprofit schools in the State prior to submitting the
recommendation.
(ii) In identifying teacher shortage areas to propose for
designation under paragraph (q)(6)(i) of this section, the Chief State
School Officer shall consider data from the school year in which the
recommendation is to be made, unless that data is not yet available, in
which case he or she may use data from the immediately preceding school
year, with respect to--
(A) Teaching positions that are unfilled;
(B) Teaching positions that are filled by teachers who are certified
by irregular, provisional, temporary, or emergency certification; and
(C) Teaching positions that are filled by teachers who are
certified, but who are teaching in academic subject areas other than
their area of preparation.
(iii) If the total number of unduplicated full-time equivalent (FTE)
elementary or secondary teaching positions identified under paragraph
(q)(6)(ii) of this section in the shortage areas proposed by the State
for designation does not exceed 5 percent of the total number of FTE
elementary and secondary teaching positions in the State, the Secretary
designates those areas as teacher shortage areas.
(iv) If the total number of unduplicated FTE elementary and
secondary teaching positions identified under paragraph (q)(6)(ii) of
this section in the shortage areas proposed by the State for designation
exceeds 5 percent of the total number of elementary and secondary FTE
teaching positions in the State, the Chief State School Officer shall
submit, with the list of proposed areas, supporting documentation
showing the methods used for identifying shortage areas, and an
explanation of the reasons why the Secretary should nevertheless
designate all of the proposed areas as teacher shortage areas. The
explanation must include a ranking of the proposed shortage areas
according to priority, to assist the Secretary in determining which
areas should be designated. The Secretary, after considering the
explanation, determines which shortage areas to designate as teacher
shortage areas.
(7) A Chief State School Officer may submit to the Secretary for
approval
[[Page 54]]
an alternative written procedure to the one described in paragraph
(q)(6) of this section, for the Chief State School Officer to use to
select the teacher shortage areas recommended to the Secretary for
designation, and for the Secretary to use to choose the areas to be
designated. If the Secretary approves the proposed alternative
procedure, in writing, that procedure, once approved, may be used
instead of the procedure described in paragraph (q)(6) of this section
for designation of teacher shortage areas in that State.
(8) For purposes of paragraphs (q)(1) through (7) of this section--
(i) The definition of the term school in Sec. 682.200(b) does not
apply;
(ii) Elementary school means a day or residential school that
provides elementary education, as determined under State law;
(iii) Secondary school means a day or residential school that
provides secondary education, as determined under State law. In the
absence of applicable State law, the Secretary may determine, with
respect to that State, whether the term ``secondary school'' includes
education beyond the twelfth grade;
(iv) Teacher means a professional who provides direct and personal
services to students for their educational development through classroom
teaching;
(v) Chief State School Officer means the highest ranking educational
official for elementary and secondary education for the State;
(vi) School year means the period from July 1 of a calendar year
through June 30 of the following calendar year;
(vii) Teacher shortage area means an area of specific grade, subject
matter, or discipline classification, or a geographic area in which the
Secretary determines that there is an inadequate supply of elementary or
secondary school teachers; and
(viii) Full-time equivalent means the standard used by a State in
defining full-time employment, but not less than 30 hours per week. For
purposes of counting full-time equivalent teacher positions, a teacher
working part of his or her total hours in a position that is designated
as a teacher shortage area is counted on a pro rata basis corresponding
to the percentage of his or her working hours spent in such a position.
(r) Working-mother deferment. (1) To qualify for the working-mother
deferment described in paragraph (b)(3)(v) of this section, the borrower
shall provide the lender with a statement certifying that she--
(i) Is the mother of a preschool-age child;
(ii) Entered or reentered the workforce not more than one year
before the beginning date of the period for which the deferment is being
sought;
(iii) Is currently engaged in full-time employment; and
(iv) Does not receive compensation that exceeds $1 per hour above
the rate prescribed under section 6 of the Fair Labor Standards Act of
1938 (the Federal minimum wage).
(2) In addition to the certification required under paragraph (r)(1)
of this section, the borrower shall provide to the lender documents
demonstrating the age of her child (e.g., a birth certificate) and the
rate of her compensation (e.g., a pay stub showing her hourly rate of
pay).
(3) For purposes of this paragraph--
(i) A preschool-age child is one who has not yet enrolled in first
grade or a higher grade in elementary school; and
(ii) Full-time employment involves at least 30 hours of work a week
and is expected to last at least 3 months.
(s) Deferments for new borrowers on or after July 1, 1993--(1)
General. (i) A new borrower who receives an FFEL Program loan first
disbursed on or after July 1, 1993 is entitled to receive deferments
under paragraphs (s)(2) through (s)(6) of this section. For purposes of
paragraphs (s)(2) through (s)(6) of this section, a ``new borrower'' is
an individual who has no outstanding principal or interest balance on an
FFEL Program loan as of July 1, 1993 or on the date he or she obtains a
loan on or after July 1, 1993. This term also includes a borrower who
obtains a Federal Consolidation Loan on or after July 1, 1993 if the
borrower has no other outstanding FFEL Program loan when the
Consolidation Loan was made.
[[Page 55]]
(ii) As a condition for receiving a deferment, except for purposes
of paragraph (s)(2) of this section, the borrower must request the
deferment and provide the lender with all information and documents
required to establish eligibility for the deferment.
(iii) After receiving a borrower's written or verbal request, a
lender may grant a deferment under paragraphs (s)(3) through (s)(6) of
this section if the lender is able to confirm that the borrower has
received a deferment on another FFEL loan or on a Direct Loan for the
same reason and the same time period. The lender may grant the deferment
based on information from the other FFEL loan holder or the Secretary or
from an authoritative electronic database maintained or authorized by
the Secretary that supports eligibility for the deferment for the same
reason and the same time period.
(iv) A lender may rely in good faith on the information it receives
under paragraph (s)(1)(iii) of this section when determining a
borrower's eligibility for a deferment unless the lender, as of the date
of the determination, has information indicating that the borrower does
not qualify for the deferment. A lender must resolve any discrepant
information before granting a deferment under paragraph (s)(1)(iii) of
this section.
(v) A lender that grants a deferment under paragraph (s)(1)(iii) of
this section must notify the borrower that the deferment has been
granted and that the borrower has the option to pay interest that
accrues on an unsubsidized FFEL loan or to cancel the deferment and
continue to make payments on the loan.
(2) In-school deferment. An eligible borrower is entitled to a
deferment based on the borrower's at least half-time study in accordance
with the rules prescribed in Sec. 682.210(c).
(3) Graduate fellowship deferment. An eligible borrower is entitled
to a graduate fellowship deferment in accordance with the rules
prescribed in Sec. 682.210(d).
(4) Rehabilitation training program deferment. An eligible borrower
is entitled to a rehabilitation training program deferment in accordance
with the rules prescribed in Sec. 682.210(e).
(5) Unemployment deferment. An eligible borrower is entitled to an
unemployment deferment in accordance with the rules prescribed in
Sec. 682.210(h) for periods that, collectively, do not exceed 3 years.
(6) Economic hardship deferment. An eligible borrower is entitled to
an economic hardship deferment for periods of up to one year at a time
that, collectively, do not exceed 3 years (except that a borrower who
receives a deferment under paragraph (s)(6)(iv) of this section is
entitled to an economic hardship deferment for the lesser of the
borrower's full term of service in the Peace Corps or the borrower's
remaining period of economic hardship deferment eligibility under the 3-
year maximum), if the borrower provides documentation satisfactory to
the lender showing that the borrower is within any of the categories
described in paragraphs (s)(6)(i) through (s)(6)(iv) of this section.
(i) Has been granted an economic hardship deferment under either the
Direct Loan or Federal Perkins Loan Programs for the period of time for
which the borrower has requested an economic hardship deferment for his
or her FFEL loan.
(ii) Is receiving payment under a Federal or State public assistance
program, such as Aid to Families with Dependent Children, Supplemental
Security Income, Food Stamps, or State general public assistance.
(iii) Is working full-time and has a monthly income that does not
exceed the greater of (as calculated on a monthly basis)--
(A) The minimum wage rate described in section 6 of the Fair Labor
Standards Act of 1938; or
(B) An amount equal to 150 percent of the poverty guideline
applicable to the borrower's family size as published annually by the
Department of Health and Human Services pursuant to 42 U.S.C. 9902(2).
If a borrower is not a resident of a State identified in the poverty
guidelines, the poverty guideline to be used for the borrower is the
poverty guideline (for the relevant family size) used for the 48
contiguous States.
(iv) Is serving as a volunteer in the Peace Corps.
[[Page 56]]
(v) For an initial period of deferment granted under paragraph
(s)(6)(iii) of this section, the lender must require the borrower to
submit evidence showing the amount of the borrower's monthly income.
(vi) To qualify for a subsequent period of deferment that begins
less than one year after the end of a period of deferment under
paragraph (s)(6)(iii) of this section, the lender must require the
borrower to submit evidence showing the amount of the borrower's monthly
income or a copy of the borrower's most recently filed Federal income
tax return.
(vii) For purposes of paragraph (s)(6) of this section, a borrower's
monthly income is the gross amount of income received by the borrower
from employment and from other sources, or one-twelfth of the borrower's
adjusted gross income, as recorded on the borrower's most recently filed
Federal income tax return.
(viii) For purposes of paragraph (s)(6) of this section, a borrower
is considered to be working full-time if the borrower is expected to be
employed for at least three consecutive months at 30 hours per week.
(ix) For purposes of paragraph (s)(6)(iii)(B) of this section,
family size means the number that is determined by counting the
borrower, the borrower's spouse, and the borrower's children, including
unborn children who will be born during the period covered by the
deferment, if the children receive more than half their support from the
borrower. A borrower's family size includes other individuals if, at the
time the borrower requests the economic hardship deferment, the other
individuals--
(A) Live with the borrower; and
(B) Receive more than half their support from the borrower and will
continue to receive this support from the borrower for the year the
borrower certifies family size. Support includes money, gifts, loans,
housing, food, clothes, car, medical and dental care, and payment of
college costs.
(t) Military service deferments. (1) A borrower who receives a FFEL
Program loan may receive a military service deferment for such loan for
any period during which the borrower is--
(i) Serving on active duty during a war or other military operation
or national emergency; or
(ii) Performing qualifying National Guard duty during a war or other
military operation or national emergency.
(2) For a borrower whose active duty service includes October 1,
2007, or begins on or after that date, the deferment period ends 180
days after the demobilization date for each period of service described
in paragraph (t)(1)(i) and (t)(1)(ii) of this section.
(3) Serving on active duty during a war or other military operation
or national emergency means service by an individual who is--
(i) A Reserve of an Armed Force ordered to active duty under 10
U.S.C. 12301(a), 12301(g), 12302, 12304 or 12306;
(ii) A retired member of an Armed Force ordered to active duty under
10 U.S.C. 688 for service in connection with a war or other military
operation or national emergency, regardless of the location at which
such active duty service is performed; or
(iii) Any other member of an Armed Force on active duty in
connection with such emergency or subsequent actions or conditions who
has been assigned to a duty station at a location other than the
location at which member is normally assigned.
(4) Qualifying National Guard duty during a war or other operation
or national emergency means service as a member of the National Guard on
full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5), under
a call to active service authorized by the President or the Secretary of
Defense for a period of more than 30 consecutive days under 32 U.S.C.
502(f) in connection with a war, other military operation, or national
emergency declared by the President and supported by Federal funds.
(5) Payments made by or on behalf of a borrower during a period for
which the borrower qualified for a military service deferment are not
refunded.
(6) As used in this paragraph--
(i) Active duty means active duty as defined in 10 U.S.C. 101(d)(1)
except that it does not include active duty for training or attendance
at a service school;
[[Page 57]]
(ii) Military operation means a contingency operation as defined in
10 U.S.C. 101(a)(13); and
(iii) National emergency means the national emergency by reason of
certain terrorist attacks declared by the President on September 14,
2001, or subsequent national emergencies declared by the President by
reason of terrorist attacks.
(7) To receive a military service deferment, the borrower, or the
borrower's representative, must request the deferment and provide the
lender with all information and documents required to establish
eligibility for the deferment, except that a lender may grant a borrower
a military service deferment under the procedures specified in
paragraphs (s)(1)(iii) through (s)(1)(v) of this section.
(8) A lender that grants a military service deferment based on a
request from a borrower's representative must notify the borrower that
the deferment has been granted and that the borrower has the option to
cancel the deferment and continue to make payments on the loan. The
lender may also notify the borrower's representative of the outcome of
the deferment request.
(9) Without supporting documentation, a military service deferment
may be granted to an otherwise eligible borrower for a period not to
exceed the initial 12 months from the date the qualifying eligible
service began based on a request from the borrower or the borrower's
representative.
(u) Post-active duty student deferment. (1) Effective October 1,
2007, a borrower who receives a FFEL Program loan and is serving on
active duty on that date, or begins serving on or after that date, is
entitled to receive a post-active duty student deferment for 13 months
following the conclusion of the borrower's active duty military service
and any applicable grace period if--
(i) The borrower is a member of the National Guard or other reserve
component of the Armed Forces of the United States or a member of such
forces in retired status; and
(ii) The borrower was enrolled, on at least a half-time basis, in a
program of instruction at an eligible institution at the time, or within
six months prior to the time, the borrower was called to active duty.
(2) As used in paragraph (u)(1) of this section, ``active duty''
means active duty as defined in section 101(d)(1) of title 10, United
States Code for at least a 30-day period, except that--
(i) Active duty includes active State duty for members of the
National Guard under which a Governor activates National Guard personnel
based on State statute or policy and the activities of the National
Guard are paid for with State funds;
(ii) Active duty includes full-time National Guard duty under which
a Governor is authorized, with the approval of the President or the U.S.
Secretary of Defense, to order a member to State active duty and the
activities of the National Guard are paid for with Federal funds;
(iii) Active duty does not include active duty for training or
attendance at a service school; and
(iv) Active duty does not include employment in a full-time,
permanent position in the National Guard unless the borrower employed in
such a position is reassigned to active duty under paragraph (u)(2)(i)
of this section or full-time National Guard duty under paragraph
(u)(2)(ii) of this section.
(3) If the borrower returns to enrolled student status, on at least
a half-time basis, during the 13-month deferment period, the deferment
expires at the time the borrower returns to enrolled student status, on
at least a half-time basis.
(4) If a borrower qualifies for both a military service deferment
and a post-active duty student deferment, the 180-day post-
demobilization military service deferment period and the 13-month post-
active duty student deferment period apply concurrently.
(5) To receive a post-active duty student deferment, the borrower
must request the deferment and provide the lender with all information
and documents required to establish eligibility for the deferment,
except that a lender may grant a borrower a post-active duty student
deferment under the procedures specified in paragraphs (s)(1)(iii)
through (s)(1)(v) of this section.
[[Page 58]]
(v) In-school deferments for PLUS loan borrowers with loans first
disbursed on or after July 1, 2008. (1)(i) A student PLUS borrower is
entitled to a deferment on a PLUS loan first disbursed on or after July
1, 2008 during the 6-month period that begins on the day after the
student ceases to be enrolled on at least a half-time basis at an
eligible institution.
(ii) If a lender grants an in-school deferment to a student PLUS
borrower based on Sec. 682.210(c)(1)(ii), (iii), or (iv), the deferment
period for a PLUS loan first disbursed on or after July 1, 2008 includes
the 6-month post-enrollment period described in paragraph (v)(1)(i) of
this section. The notice required by Sec. 682.210(c)(2) must inform the
borrower that the in-school deferment on a PLUS loan first disbursed on
or after July 1, 2008 will end six months after the day the borrower
ceases to be enrolled on at least a half-time basis.
(2) Upon the request of the borrower, an eligible parent PLUS
borrower must be granted a deferment on a PLUS loan first disbursed on
or after July 1, 2008--
(i) During the period when the student on whose behalf the loan was
obtained is enrolled at an eligible institution on at least a half-time
basis; and
(ii) During the 6-month period that begins on the later of the day
after the student on whose behalf the loan was obtained ceases to be
enrolled on at least a half-time basis or, if the parent borrower is
also a student, the day after the parent borrower ceases to be enrolled
on at least a half-time basis.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1085)
[57 FR 60323, Dec. 18, 1992]
Editorial Note: For Federal Register citations affecting
Sec. 682.210, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
Sec. 682.211 Forbearance.
(a)(1) The Secretary encourages a lender to grant forbearance for
the benefit of a borrower or endorser in order to prevent the borrower
or endorser from defaulting on the borrower's or endorser's repayment
obligation, or to permit the borrower or endorser to resume honoring
that obligation after default. Forbearance means permitting the
temporary cessation of payments, allowing an extension of time for
making payments, or temporarily accepting smaller payments than
previously were scheduled.
(2) Subject to paragraph (g) of this section, a lender may grant
forbearance of payments of principal and interest under paragraphs (b),
(c), and (d) of this section only if--
(i) The lender reasonably believes, and documents in the borrower's
file, that the borrower or endorser intends to repay the loan but, due
to poor health or other acceptable reasons, is currently unable to make
scheduled payments; or
(ii) The borrower's payments of principal are deferred under
Sec. 682.210 and the Secretary does not pay interest benefits on behalf
of the borrower under Sec. 682.301.
(3) If two individuals are jointly liable for repayment of a PLUS
loan or a Consolidation loan, the lender may grant forbearance on
repayment of the loan only if the ability of both individuals to make
scheduled payments has been impaired based on the same or differing
conditions.
(4) Except as provided in paragraph (f)(11) of this section, if
payments of interest are forborne, they may be capitalized as provided
in Sec. 682.202(b).
(b) A lender may grant forbearance if--
(1) The lender and the borrower or endorser agree to the terms of
the forbearance and, unless the agreement was in writing, the lender
sends, within 30 days, a notice to the borrower or endorser confirming
the terms of the forbearance and records the terms of the forbearance in
the borrower's file; or
(2) In the case of forbearance of interest during a period of
deferment, if the lender informs the borrower at the time the deferment
is granted that interest payments are to be forborne.
(c) Except as provided in paragraph (d)(2) of this section, a lender
may grant forbearance for a period of up to one year at a time if both
the borrower or endorser and an authorized official of the lender agree
to the terms of the
[[Page 59]]
forbearance. If the borrower or endorser requests the forbearance orally
and the lender and the borrower or endorser agree to the terms of the
forbearance orally, the lender must notify the borrower or endorser of
the terms within 30 days of that agreement.
(d)(1) A guaranty agency may authorize a lender to grant forbearance
to permit a borrower or endorser to resume honoring the agreement to
repay the debt after default but prior to claim payment. The forbearance
agreement in this situation must include a new agreement to repay the
debt signed by the borrower or endorser or a written or oral affirmation
of the borrower's or endorser's obligation to repay the debt.
(2) If the forbearance is based on the borrower's or endorser's oral
request and affirmation of the obligation to repay the debt--
(i) The forbearance period is limited to a period of 120 days;
(ii) Such a forbearance cannot be granted consecutively;
(iii) The lender must orally review with the borrower the terms and
conditions of the forbearance, including the consequences of interest
capitalization, and all other repayment options available to the
borrower; and
(iv) The lender must--
(A) Send a notice to the borrower or endorser, as provided in
paragraph (c) of this section, that confirms the terms of the
forbearance and the borrower's or endorser's affirmation of the
obligation to repay the debt, and includes information on all other
repayment options available to the borrower, and
(B) Retain a record of the terms of the forbearance and affirmation
in the borrower's or endorser's file.
(3) For purposes of this section, an ``affirmation'' means an
acknowledgement of the loan by the borrower or endorser in a legally
binding manner. The form of the affirmation may include, but is not
limited to, the borrower's or endorser's--
(i) New signed repayment agreement or schedule, or another form of
signed agreement to repay the debt;
(ii) Oral acknowledgment and agreement to repay the debt documented
by the lender in the borrower's or endorser's file and confirmed by the
lender in a notice to the borrower; or
(iii) A payment made on the loan by the borrower or endorser.
(e)(1) At the time of granting a borrower or endorser a forbearance,
the lender must provide the borrower or endorser with information to
assist the borrower or endorser in understanding the impact of
capitalization of interest on the loan principal and total interest to
be paid over the life of the loan; and
(2) At least once every 180 days during the period of forbearance,
the lender must contact the borrower or endorser to inform the borrower
or endorser of--
(i) The outstanding obligation to repay;
(ii) The amount of the unpaid principal balance and any unpaid
interest that has accrued on the loan since the last notice provided to
the borrower or endorser under this paragraph;
(iii) The fact that interest will accrue on the loan for the full
term of the forbearance;
(iv) The amount of interest that will be capitalized, as of the date
of the notice, and the date capitalization will occur;
(v) The option of the borrower or endorser to pay the interest that
has accrued before the interest is capitalized; and
(vi) The borrower's or endorser's option to discontinue the
forbearance at any time.
(f) A lender may grant forbearance, upon notice to the borrower or
if applicable, the endorser, with respect to payments of interest and
principal that are overdue or would be due--
(1) For a properly granted period of deferment for which the lender
learns the borrower did not qualify;
(2) Upon the beginning of an authorized deferment period under
Sec. 682.210, or an authorized period of forbearance;
(3) For the period beginning when the borrower entered repayment
without the lender's knowledge until the first payment due date was
established;
(4) For the period prior to the borrower's filing of a bankruptcy
petition as provided in Sec. 682.402(f);
(5) For the periods described in Sec. 682.402(c) in regard to the
borrower's total and permanent disability;
[[Page 60]]
(6) Upon receipt of a valid identity theft report as defined in
section 603(q)(4) of the Fair Credit Reporting Act (15 U.S.C. 1681a) or
notification from a consumer reporting agency that information furnished
by the lender is a result of an alleged identity theft as defined in
Sec. 682.402(e)(14), for a period not to exceed 120 days necessary for
the lender to determine the enforceability of the loan. If the lender
determines that the loan does not qualify for discharge under
Sec. 682.402(e)(1)(i)(C), but is nonetheless unenforceable, the lender
must comply with Secs. 682.300(b)(2)(ix) and 682.302(d)(1)(viii).
(7) For a period not to exceed an additional 60 days after the
lender has suspended collection activity for the initial 60-day period
required pursuant to Sec. 682.211(i)(6) and Sec. 682.402(b)(3), when the
lender receives reliable information that the borrower (or student on
whose behalf a parent has borrowed a PLUS Loan) has died;
(8) For periods necessary for the Secretary or guaranty agency to
determine the borrower's eligibility for discharge of the loan because
of an unpaid refund, attendance at a closed school or false
certification of loan eligibility, pursuant to Sec. 682.402(d) or (e),
or the borrower's or, if applicable, endorser's bankruptcy, pursuant to
Sec. 682.402(f);
(9) For a period of delinquency at the time a loan is sold or
transferred, if the borrower or endorser is less than 60 days delinquent
on the loan at the time of sale or transfer;
(10) For a period of delinquency that may remain after a borrower
ends a period of deferment or mandatory forbearance until the next due
date, which can be no later than 60 days after the period ends;
(11) For a period not to exceed 60 days necessary for the lender to
collect and process documentation supporting the borrower's request for
a deferment, forbearance, change in repayment plan, or consolidation
loan. Interest that accrues during this period is not capitalized;
(12) For a period not to exceed 3 months when the lender determines
that a borrower's ability to make payments has been adversely affected
by a natural disaster, a local or national emergency as declared by the
appropriate government agency, or a military mobilization;
(13) For a period not to exceed 60 days necessary for the lender to
collect and process documentation supporting the borrower's eligibility
for loan forgiveness under the income-based repayment program. The
lender must notify the borrower that the requirement to make payments on
the loans for which forgiveness was requested has been suspended pending
approval of the forgiveness by the guaranty agency;
(14) For a period of delinquency at the time a borrower makes a
change to the repayment plan; or
(15) For PLUS loans first disbursed before July 1, 2008, to align
repayment with a borrower's PLUS loans that were first disbursed on or
after July 1, 2008, or with Stafford Loans that are subject to a grace
period under Sec. 682.209(a)(3). The notice specified in paragraph (f)
introductory text of this section must inform the borrower that the
borrower has the option to cancel the forbearance and continue paying on
the loan; or
(16) For the periods described in Sec. 682.215(e)(9) in regard to
the income-based repayment plan.
(g) In granting a forbearance under this section, except for a
forbearance under paragraph (i)(5) of this section, a lender shall grant
a temporary cessation of payments, unless the borrower chooses another
form of forbearance subject to paragraph (a)(1) of this section.
(h) Mandatory forbearance--(1) Medical or dental interns or
residents. Upon receipt of a request and sufficient supporting
documentation, as described in Sec. 682.210(n), from a borrower serving
in a medical or dental internship or residency program, a lender shall
grant forbearance to the borrower in yearly increments (or a lesser
period equal to the actual period during which the borrower is eligible)
if the borrower has exhausted his or her eligibility for a deferment
under Sec. 682.210(n), or the borrower's promissory note does not
provide for such a deferment--
[[Page 61]]
(i) For the length of time remaining in the borrower's medical or
dental internship or residency that must be successfully completed
before the borrower may begin professional practice or service; or
(ii) For the length of time that the borrower is serving in a
medical or dental internship or residency program leading to a degree or
certificate awarded by an institution of higher education, a hospital,
or a health care facility that offers postgraduate training.
(2) Borrowers who are not medical or dental interns or residents,
and endorsers. Upon receipt of a request and sufficient supporting
documentation from an endorser (if applicable), or from a borrower
(other than a borrower who is serving in a medical or dental internship
or residency described in paragraph (h)(1) of this section), a lender
shall grant forbearance--
(i) In increments up to one year, for periods that collectively do
not exceed three years, if--
(A) The borrower or endorser is currently obligated to make payments
on Title IV loans; and
(B) The amount of those payments each month (or a proportional share
if the payments are due less frequently than monthly) is collectively
equal to or greater than 20 percent of the borrower's or endorser's
total monthly income;
(ii) In yearly increments (or a lesser period equal to the actual
period during which the borrower is eligible) for as long as a
borrower--
(A) Is serving in a national service position for which the borrower
receives a national service educational award under the National and
Community Service Trust Act of 1993;
(B) Is performing the type of service that would qualify the
borrower for a partial repayment of his or her loan under the Student
Loan Repayment Programs administered by the Department of Defense under
10 U.S.C. 2171, 2173, 2174 or any other student loan repayment programs
administered by the Department of Defense; or
(C) Is performing the type of service that would qualify the
borrower for loan forgiveness and associated forbearance under the
requirements of the teacher loan forgiveness program in Sec. 682.216;
and
(iii) In yearly increments (or a lesser period equal to the actual
period for which the borrower is eligible) when a member of the National
Guard who qualifies for a post-active duty student deferment, but does
not qualify for a military service deferment or other deferment, is
engaged in active State duty as defined in Sec. 682.210(u)(2)(i) and
(ii) for a period of more than 30 consecutive days, beginning--
(A) On the day after the grace period expires for a Stafford loan
that has not entered repayment; or
(B) On the day after the borrower ceases at least half-time
enrollment, for a FFEL loan in repayment.
(3) Forbearance agreement. After the lender determines the
borrower's or endorser's eligibility, and the lender and the borrower or
endorser agree to the terms of the forbearance granted under this
section, the lender sends, within 30 days, a notice to the borrower or
endorser confirming the terms of the forbearance and records the terms
of the forbearance in the borrower's file.
(4) Documentation. (i) Before granting a forbearance to a borrower
or endorser under paragraph (h)(2)(i) of this section, the lender shall
require the borrower or endorser to submit at least the following
documentation:
(A) Evidence showing the amount of the most recent total monthly
gross income received by the borrower or endorser from employment and
from other sources; and
(B) Evidence showing the amount of the monthly payments owed by the
borrower or endorser to other entities for the most recent month for the
borrower's or endorser's Title IV loans.
(ii) Before granting a forbearance to a borrower or endorser under
paragraph (h)(2)(ii)(B) of this section, the lender shall require the
borrower or endorser to submit documentation showing the beginning and
ending dates that the Department of Defense considers the borrower to be
eligible for a partial repayment of his or her loan under the Student
Loan Repayment Programs.
(iii) Before granting a forbearance to a borrower under paragraph
(h)(2)(ii)(C)
[[Page 62]]
of this section, the lender must require the borrower to--
(A) Submit documentation for the period of the annual forbearance
request showing the beginning and anticipated ending dates that the
borrower is expected to perform, for that year, the type of service
described in Sec. 682.216(c); and
(B) Certify the borrower's intent to satisfy the requirements of
Sec. 682.216(c).
(i) Mandatory administrative forbearance. (1) The lender shall grant
a mandatory administrative forbearance for the periods specified in
paragraph (i)(2) of this section until the lender is notified by the
Secretary or a guaranty agency that the forbearance period no longer
applies. The lender may not require a borrower who is eligible for a
forbearance under paragraph (i)(2)(ii) of this section to submit a
request or supporting documentation, but shall require a borrower (or
endorser, if applicable) who requests forbearance because of a military
mobilization to provide documentation showing that he or she is subject
to a military mobilization as described in paragraph (i)(4) of this
section.
(2) The lender is not required to notify the borrower (or endorser,
if applicable) at the time the forbearance is granted, but shall grant a
forbearance to a borrower or endorser during a period, and the 30 days
following the period, when the lender is notified by the Secretary
that--
(i) Exceptional circumstances exist, such as a local or national
emergency or military mobilization; or
(ii) The geographical area in which the borrower or endorser resides
has been designated a disaster area by the president of the United
States or Mexico, the Prime Minister of Canada, or by a Governor of a
State.
(3) As soon as feasible, or by the date specified by the Secretary,
the lender shall notify the borrower (or endorser, if applicable) that
the lender has granted a forbearance and the date that payments should
resume. The lender's notification shall state that the borrower or
endorser--
(i) May decline the forbearance and continue to be obligated to make
scheduled payments; or
(ii) Consents to making payments in accordance with the lender's
notification if the forbearance is not declined.
(4) For purposes of paragraph (i)(2)(i) of this section, the term
``military mobilization'' shall mean a situation in which the Department
of Defense orders members of the National Guard or Reserves to active
duty under sections 688, 12301(a), 12301(g), 12302, 12304, and 12306 of
title 10, United States Code. This term also includes the assignment of
other members of the Armed Forces to duty stations at locations other
than the locations at which they were normally assigned, only if the
military mobilization involved the activation of the National Guard or
Reserves.
(5) The lender shall grant a mandatory administrative forbearance to
a borrower (or endorser, if applicable) during a period when the
borrower (or endorser, if applicable) is making payments for a period
of--
(i) Up to 3 years of payments in cases where the effect of a
variable interest rate on a standard or graduated repayment schedule
would result in a loan not being repaid within the maximum repayment
term; or
(ii) Up to 5 years of payments in cases where the effect of
decreased installment amounts paid under an income-sensitive repayment
schedule would result in the loan not being repaid within the maximum
repayment term.
(6) The lender shall grant a mandatory administrative forbearance to
a borrower for a period not to exceed 60 days after the lender receives
reliable information indicating that the borrower (or student in the
case of a PLUS loan) has died, until the lender receives documentation
of death pursuant to Sec. 682.402(b)(3).
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1080, 1082)
[57 FR 60323, Dec. 18, 1992]
Editorial Note: For Federal Register citations affecting
Sec. 682.211, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
[[Page 63]]
Effective Date Note: At 81 FR 76079, Nov. 1, 2016, Sec. 682.211 was
amended by adding paragraph (i)(7), eff. July 1, 2017. At 82 FR 27621,
June 16, 2017, the effective date was delayed indefinitely. For the
convenience of the user, the added text was set forth as follows:
Sec. 682.211 Forbearance.
* * * * *
(i) * * *
(7) The lender must grant a mandatory administrative forbearance to
a borrower upon being notified by the Secretary that the borrower has
made a borrower defense claim related to a loan that the borrower
intends to consolidate into the Direct Loan Program for the purpose of
seeking relief in accordance with Sec. 685.212(k). The mandatory
administrative forbearance shall be granted in yearly increments or for
a period designated by the Secretary until the loan is consolidated or
until the lender is notified by the Secretary to discontinue the
forbearance.
* * * * *
Sec. 682.212 Prohibited transactions.
(a) No points, premiums, payments, or additional interest of any
kind may be paid or otherwise extended to any eligible lender or other
party in order to--
(1) Secure funds for making loans; or
(2) Induce a lender to make loans to either the students or the
parents of students of a particular school or particular category of
students or their parents.
(b) The following are examples of transactions that, if entered into
for the purposes described in paragraph (a) of this section, are
prohibited:
(1) Cash payments by or on behalf of a school made to a lender or
other party.
(2) The maintaining of a compensating balance by or on behalf of a
school with a lender.
(3) Payments by or on behalf of a school to a lender of servicing
costs on loans that the school does not own.
(4) Payments by or on behalf of a school to a lender of unreasonably
high servicing costs on loans that the school does own.
(5) Purchase by or on behalf of a school of stock of the lender.
(6) Payments ostensibly made for other purposes.
(c) Except when purchased by an agency of any State functioning as a
secondary market or in any other circumstances approved by the
Secretary, notes, or any interest in notes, may not be sold or otherwise
transferred at discount if the underlying loans were made--
(1) By a school; or
(2) To students or parents of students attending a school by a
lender having common ownership with that school.
(d) Except to secure a loan from an agency of a State functioning as
a secondary market or in other circumstances approved by the Secretary,
a school or lender (with respect to a loan made to a student, or a
parent of a student, attending a school having common ownership with
that lender), may not use a loan made under the FFEL programs as
collateral for any loan bearing aggregate interest and other charges in
excess of the sum of the interest rate applicable to the loan plus the
rate of the most recently prescribed special allowance under
Sec. 682.302.
(e) The prohibitions described in paragraphs (a), (b), (c), and (d)
of this section apply to any school, lender, or other party that would
participate in a proscribed transaction.
(f) This section does not preclude a buyer of loans made by a school
from obtaining from the loan seller a warranty that--
(1) Covers future reductions by the Secretary or a guaranty agency
in computing the amount of loss payable on default claims filed on the
loans, if the reductions are attributable to an act, or failure to act,
on the part of the seller or previous holder; and
(2) Does not cover matters for which a purchaser is charged with
responsibility under this part, such as due diligence in collecting
loans.
(g) Section 490(c) of the Act provides that any person who knowingly
and willfully makes an unlawful payment to an eligible lender as an
inducement to make, or to acquire by assignment, a FFEL loan shall, upon
conviction thereof, be fined not more than $10,000 or imprisoned not
more than one year, or both.
[[Page 64]]
(h) A school may, at its option, make available a list of
recommended or suggested lenders, in print or any other medium or form,
for use by the school's students or their parents provided that such
list complies with the requirements in 34 CFR 601.10 and 668.14(a)(28).
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1097)
[57 FR 60323, Dec. 18, 1992, as amended at 72 FR 62002, Nov. 1, 2007; 74
FR 55664, Oct. 28, 2009]
Sec. 682.213 Prohibition against the use of the Rule of 78s.
For purposes of the calculations required by this part, a lender may
not use the Rule of 78s to calculate the outstanding principal balance
of a loan, except for a loan made to a borrower who entered repayment
before June 26, 1987 and who was informed in the promissory note that
interest on the loan would be calculated using the Rule of 78s. For
those loans, the Rule of 78s must be used for the life of the loan.
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082)
[57 FR 60323, Dec. 18, 1992, as amended at 68 FR 75429, Dec. 31, 2003]
Sec. 682.214 [Reserved]
Sec. 682.215 Income-based repayment plan.
(a) Definitions. As used in this section--
(1) Adjusted gross income (AGI) means the borrower's adjusted gross
income as reported to the Internal Revenue Service. For a married
borrower filing jointly, AGI includes both the borrower's and spouse's
income. For a married borrower filing separately, AGI includes only the
borrower's income.
(2) Eligible loan means any outstanding loan made to a borrower
under the FFEL and Direct Loan programs except for a defaulted loan, a
FFEL or Direct PLUS Loan made to a parent borrower, or a FFEL or Direct
Consolidation Loan that repaid a FFEL or Direct PLUS Loan made to a
parent borrower.
(3) Family size means the number that is determined by counting the
borrower, the borrower's spouse, and the borrower's children, including
unborn children who will be born during the year the borrower certifies
family size, if the children receive more than half their support from
the borrower. A borrower's family size includes other individuals if, at
the time the borrower certifies family size, the other individuals--
(i) Live with the borrower; and
(ii) Receive more than half their support from the borrower and will
continue to receive this support from the borrower for the year the
borrower certifies family size. Support includes money, gifts, loans,
housing, food, clothes, car, medical and dental care, and payment of
college costs.
(4) Partial financial hardship means a circumstance in which--
(i) For an unmarried borrower or a married borrower who files an
individual Federal tax return, the annual amount due on all of the
borrower's eligible loans, as calculated under a standard repayment plan
based on a 10-year repayment period, using the greater of the amount due
at the time the borrower initially entered repayment or at the time the
borrower elects the income-based repayment plan, exceeds 15 percent of
the difference between the borrower's AGI and 150 percent of the poverty
guideline for the borrower's family size; or
(ii) For a married borrower who files a joint Federal tax return
with his or her spouse, the annual amount due on all of the borrower's
eligible loans and, if applicable, the spouse's eligible loans, as
calculated under a standard repayment plan based on a 10-year repayment
period, using the greater of the amount due at the time the loans
initially entered repayment or at the time the borrower or spouse elects
the income-based repayment plan, exceeds 15 percent of the difference
between the borrower's and spouse's AGI, and 150 percent of the poverty
guideline for the borrower's family size.
(5) Poverty guideline refers to the income categorized by State and
family size in the poverty guidelines published annually by the United
States Department of Health and Human Services
[[Page 65]]
pursuant to 42 U.S.C. 9902(2). If a borrower is not a resident of a
State identified in the poverty guidelines, the poverty guideline to be
used for the borrower is the poverty guideline (for the relevant family
size) used for the 48 contiguous States.
(b) Repayment plan. (1) A borrower may elect the income-based
repayment plan only if the borrower has a partial financial hardship.
The borrower's aggregate monthly loan payments are limited to no more
than 15 percent of the amount by which the borrower's AGI exceeds 150
percent of the poverty line income applicable to the borrower's family
size, divided by 12. The loan holder adjusts the calculated monthly
payment if--
(i) Except for borrowers provided for in paragraph (b)(1)(ii) of
this section, the total amount of the borrower's eligible loans includes
loans not held by the loan holder, in which case the loan holder
determines the borrower's adjusted monthly payment by multiplying the
calculated payment by the percentage of the total outstanding principal
amount of the borrower's eligible loans that are held by the loan
holder;
(ii) Both the borrower and the borrower's spouse have eligible loans
and filed a joint Federal tax return, in which case the loan holder
determines--
(A) Each borrower's percentage of the couple's total eligible loan
debt;
(B) The adjusted monthly payment for each borrower by multiplying
the calculated payment by the percentage determined in paragraph
(b)(1)(ii)(A) of this section; and
(C) If the borrower's loans are held by multiple holders, the
borrower's adjusted monthly payment by multiplying the payment
determined in paragraph (b)(1)(ii)(B) of this section by the percentage
of the total outstanding principal amount of the borrower's eligible
loans that are held by the loan holder;
(iii) The calculated amount under paragraph (b)(1), (b)(1)(i), or
(b)(1)(ii) of this section is less than $5.00, in which case the
borrower's monthly payment is $0.00; or
(iv) The calculated amount under paragraph (b)(1), (b)(1)(i), or
(b)(1)(ii) of this section is equal to or greater than $5.00 but less
than $10.00, in which case the borrower's monthly payment is $10.00.
(2) A borrower with eligible loans held by two or more loan holders
must request income-based repayment from each loan holder if the
borrower wants to repay all of his or her eligible loans under the
income-based repayment plan. Each loan holder must apply the payment
calculation rules in paragraphs (b)(1)(iii) and (iv) of this section to
loans they hold.
(3) If a borrower elects the income-based repayment plan on or after
July 1, 2013, the loan holder must, unless the borrower has some loans
that are eligible for repayment under the income-based repayment plan
and other loans that are not eligible for repayment under that plan,
require that all eligible loans owed by the borrower to that holder be
repaid under the income-based repayment plan.
(4) If the borrower's monthly payment amount is not sufficient to
pay the accrued interest on the borrower's subsidized Stafford Loans or
the subsidized portion of the borrower's Federal Consolidation loan, the
Secretary pays to the holder the remaining accrued interest for a period
not to exceed three consecutive years from the established repayment
period start date on each loan repaid under the income-based repayment
plan. On a Consolidation Loan that repays loans on which the Secretary
has paid accrued interest under this section, the three-year period
includes the period for which the Secretary paid accrued interest on the
underlying loans. The three-year period does not include any period
during which the borrower receives an economic hardship deferment.
(5) Except as provided in paragraph (b)(4) of this section, accrued
interest is capitalized at the time the borrower chooses to leave the
income-based repayment plan or no longer has a partial financial
hardship.
(6) If the borrower's monthly payment amount is not sufficient to
pay any principal due, the payment of that principal is postponed until
the borrower chooses to leave the income-
[[Page 66]]
based repayment plan or no longer has a partial financial hardship.
(7) The special allowance payment to a lender during the period in
which the borrower has a partial financial hardship under the income-
based repayment plan is calculated on the principal balance of the loan
and any accrued interest unpaid by the borrower.
(8) The repayment period for a borrower under the income-based
repayment plan may be greater than 10 years.
(c) Payment application and prepayment. (1) The loan holder shall
apply any payment made under the income-based repayment plan in the
following order:
(i) Accrued interest.
(ii) Collection costs.
(iii) Late charges.
(iv) Loan principal.
(2) The borrower may prepay the whole or any part of a loan at any
time without penalty.
(3) If the prepayment amount equals or exceeds a monthly payment
amount of $10.00 or more under the repayment schedule established for
the loan, the loan holder shall apply the prepayment consistent with the
requirements of Sec. 682.209(b)(2)(ii).
(4) If the prepayment amount exceeds the monthly payment amount of
$0.00 under the repayment schedule established for the loan, the loan
holder shall apply the prepayment consistent with the requirements of
paragraph (c)(1) of this section.
(d) Changes in the payment amount. (1) If a borrower no longer has a
partial financial hardship, the borrower may continue to make payments
under the income-based repayment plan but the loan holder must
recalculate the borrower's monthly payment. The loan holder also
recalculates the monthly payment for a borrower who chooses to stop
making income-based payments. In either case, as a result of the
recalculation--
(i) The maximum monthly amount that the loan holder requires the
borrower to repay is the amount the borrower would have paid under the
FFEL standard repayment plan based on a 10-year repayment period using
the amount of the borrower's eligible loans that was outstanding at the
time the borrower began repayment on the loans with that holder under
the income-based repayment plan; and
(ii) The borrower's repayment period based on the recalculated
payment amount may exceed 10 years.
(2) If a borrower no longer wishes to pay under the income-based
repayment plan, the borrower must pay under the FFEL standard repayment
plan and the loan holder recalculates the borrower's monthly payment
based on--
(i) Except as provided in paragraph (d)(2)(ii) of this section, the
time remaining under the maximum 10-year repayment period and the amount
of the borrower's loans that was outstanding at the time the borrower
discontinued paying under the income-based repayment plan; or
(ii) For a Consolidation Loan, the time remaining under the
applicable repayment period as initially determined under
Sec. 682.209(h)(2) and the total amount of that loan that was
outstanding at the time the borrower discontinued paying under the
income-based repayment plan.
(3) A borrower who no longer wishes to repay under the income-based
repayment plan and who is required to repay under the FFEL standard
repayment plan in accordance with paragraph (d)(2) of this section may
request a change to a different repayment plan after making one monthly
payment under the FFEL standard repayment plan. For this purpose, a
monthly payment may include one payment made under a forbearance that
provides for temporarily accepting smaller payments than previously
scheduled, in accordance with Sec. 682.211(a)(1).
(e) Eligibility documentation, verification, and notifications. (1)
The loan holder determines whether a borrower has a partial financial
hardship to qualify for the income-based repayment plan for the year the
borrower elects the plan and for each subsequent year that the borrower
remains on the plan. To make this determination, the loan holder
requires the borrower to--
(i) Provide documentation, acceptable to the loan holder, of the
borrower's AGI;
(ii) If the borrower's AGI is not available, or the loan holder
believes that the borrower's reported AGI does not
[[Page 67]]
reasonably reflect the borrower's current income, provide other
documentation to verify income;
(iii) If the spouse of a married borrower who files a joint Federal
tax return has eligible loans and the loan holder does not hold at least
one of the spouse's eligible loans--
(A) Ensure that the borrower's spouse has provided consent for the
loan holder to obtain information about the spouse's eligible loans from
the National Student Loan Data System; or
(B) Provide other documentation, acceptable to the loan holder, of
the spouse's eligible loan information; and
(iv) Annually certify the borrower's family size. If the borrower
fails to certify family size, the loan holder must assume a family size
of one for that year.
(2) After making a determination that a borrower has a partial
financial hardship to qualify for the income-based repayment plan for
the year the borrower initially elects the plan and for any subsequent
year that the borrower has a partial financial hardship, the loan holder
must send the borrower a written notification that provides the borrower
with--
(i) The borrower's scheduled monthly payment amount, as calculated
under paragraph (b)(1) of this section, and the time period during which
this scheduled monthly payment amount will apply (annual payment
period);
(ii) Information about the requirement for the borrower to annually
provide the information described in paragraph (e)(1) of this section,
if the borrower chooses to remain on the income-based repayment plan
after the initial year on the plan, and an explanation that the borrower
will be notified in advance of the date by which the loan holder must
receive this information;
(iii) An explanation of the consequences, as described in paragraphs
(e)(1)(iv) and (e)(7) of this section, if the borrower does not provide
the required information;
(iv) An explanation of the consequences if the borrower no longer
wishes to repay under the income-based repayment plan; and
(v) Information about the borrower's option to request, at any time
during the borrower's current annual payment period, that the loan
holder recalculate the borrower's monthly payment amount if the
borrower's financial circumstances have changed and the income amount
that was used to calculate the borrower's current monthly payment no
longer reflects the borrower's current income. If the loan holder
recalculates the borrower's monthly payment amount based on the
borrower's request, the loan holder must send the borrower a written
notification that includes the information described in paragraphs
(e)(2)(i) through (e)(2)(v) of this section.
(3) For each subsequent year that a borrower who currently has a
partial financial hardship remains on the income-based repayment plan,
the loan holder must notify the borrower in writing of the requirements
in paragraph (e)(1) of this section no later than 60 days and no earlier
than 90 days prior to the date specified in paragraph (e)(3)(i) of this
section. The notification must provide the borrower with--
(i) The date, no earlier than 35 days before the end of the
borrower's annual payment period, by which the loan holder must receive
all of the information described in paragraph (e)(1) of this section
(annual deadline); and
(ii) The consequences if the loan holder does not receive the
information within 10 days following the annual deadline specified in
the notice, including the borrower's new monthly payment amount as
determined under paragraph (d)(1) of this section, the effective date
for the recalculated monthly payment amount, and the fact that unpaid
accrued interest will be capitalized at the end of the borrower's
current annual payment period in accordance with paragraph (b)(5) of
this section.
(4) Each time a loan holder makes a determination that a borrower no
longer has a partial financial hardship for a subsequent year that the
borrower wishes to remain on the plan, the loan holder must send the
borrower a written notification that provides the borrower with--
[[Page 68]]
(i) The borrower's recalculated monthly payment amount, as
determined in accordance with paragraph (d)(1) of this section;
(ii) An explanation that unpaid accrued interest will be capitalized
in accordance with paragraph (b)(5) of this section; and
(iii) Information about the borrower's option to request, at any
time, that the loan holder redetermine whether the borrower has a
partial financial hardship, if the borrower's financial circumstances
have changed and the income amount used to determine that the borrower
no longer has a partial financial hardship does not reflect the
borrower's current income, and an explanation that the borrower will be
notified annually of this option. If the loan holder determines that the
borrower again has a partial financial hardship, the loan holder must
recalculate the borrower's monthly payment in accordance with paragraph
(b)(1) of this section and send the borrower a written notification that
includes the information described in paragraphs (e)(2)(i) through
(e)(2)(v) of this section.
(5) For each subsequent year that a borrower who does not currently
have a partial financial hardship remains on the income-based repayment
plan, the loan holder must send the borrower a written notification that
includes the information described in paragraph (e)(4)(iii) of this
section.
(6) If a borrower who is currently repaying under another repayment
plan selects the income-based repayment plan but does not provide the
documentation described in paragraphs (e)(1)(i) through (e)(1)(iii) of
this section, or if the loan holder determines that the borrower does
not have a partial financial hardship, the borrower remains on his or
her current repayment plan.
(7) The loan holder designates the repayment option described in
paragraph (d)(1) of this section if a borrower who is currently repaying
under the income-based repayment plan remains on the plan for a
subsequent year but the loan holder does not receive the information
described in paragraphs (e)(1)(i) through (e)(1)(iii) of this section
within 10 days of the specified annual deadline, unless the loan holder
is able to determine the borrower's new monthly payment amount before
the end of the borrower's current annual payment period.
(8) If the loan holder receives the information described in
paragraphs (e)(1)(i) through (e)(1)(iii) of this section within 10 days
of the specified annual deadline--
(i) The loan holder must promptly determine the borrower's new
monthly payment amount.
(ii) If the loan holder does not determine the new monthly payment
amount by the end of the borrower's current annual payment period, the
loan holder must prevent the borrower's monthly payment amount from
being recalculated in accordance with paragraph (d)(1) of this section
and maintain the borrower's current scheduled monthly payment amount
until the loan holder determines the new monthly payment amount.
(A) If the new monthly payment amount is less than the borrower's
previously calculated income-based monthly payment amount, the loan
holder must make the appropriate adjustment to the borrower's account to
reflect any payments at the previously calculated amount that the
borrower made after the end of the most recent annual payment period.
Notwithstanding the requirements of Sec. 682.209(b)(2)(ii), unless the
borrower requests otherwise the loan holder applies the excess payment
amounts made after the end of the most recent annual payment period in
accordance with the requirements of paragraph (c)(1) of this section.
(B) If the new monthly payment amount is equal to or greater than
the borrower's previously calculated income-based monthly payment
amount, the loan holder does not make any adjustments to the borrower's
account.
(iii) The new annual payment period begins on the day after the end
of the most recent annual payment period.
(9) If the loan holder receives the documentation described in
paragraphs (e)(1)(i) through (e)(1)(iii) of this section more than 10
days after the specified annual deadline and the borrower's monthly
payment amount is recalculated in accordance with paragraph
[[Page 69]]
(d)(1) of this section, the loan holder may grant forbearance with
respect to payments that are overdue or would be due at the time the new
calculated income-based monthly payment amount is determined, if the new
monthly payment amount is $0.00 or is less than the borrower's
previously calculated income-based monthly payment amount. Interest that
accrues during the portion of this forbearance period that covers
payments that are overdue after the end of the prior annual payment
period is not capitalized.
(f) Loan forgiveness. (1) To qualify for loan forgiveness after 25
years, the borrower must have participated in the income-based repayment
plan and satisfied at least one of the following conditions during that
period--
(i) Made reduced monthly payments under a partial financial hardship
as provided in paragraph (b)(1) of this section, including a monthly
payment amount of $0.00, as provided in paragraph (b)(1)(iii) of this
section;
(ii) Made reduced monthly payments after the borrower no longer had
a partial financial hardship or stopped making income-based payments as
provided in paragraph (d)(1) of this section;
(iii) Made monthly payments under any repayment plan, that were not
less than the amount required under the FFEL standard repayment plan
described in Sec. 682.209(a)(6)(vi) with a 10-year repayment period for
the amount of the borrower's loans that were outstanding at the time the
loans initially entered repayment;
(iv) Made monthly payments under the FFEL standard repayment plan
described in Sec. 682.209(a)(6)(vi) based on a 10-year repayment period;
or
(v) Received an economic hardship deferment on eligible FFEL loans.
(2) As provided under paragraph (f)(4) of this section, the
Secretary repays any outstanding balance of principal and accrued
interest on FFEL loans for which the borrower qualifies for forgiveness
if the guaranty agency determines that--
(i) The borrower made monthly payments under one or more of the
repayment plans described in paragraph (f)(1) of this section, including
a monthly amount of $0.00 as provided in paragraph (b)(1)(ii) of this
section; and
(ii)(A) The borrower made those monthly payments each year for a 25-
year period; or
(B) Through a combination of monthly payments and economic hardship
deferments, the borrower made the equivalent of 25 years of payments.
(3) For a borrower who qualifies for the income-based repayment
plan, the beginning date for the 25-year period is--
(i) For a borrower who has an eligible FFEL Consolidation Loan, the
date the borrower made a payment or received an economic hardship
deferment on that loan, before the date the borrower qualified for
income-based repayment. The beginning date is the date the borrower made
the payment or received the deferment, but no earlier than July 1, 2009;
(ii) For a borrower who has one or more other eligible FFEL loans,
the date the borrower made a payment or received an economic hardship
deferment on that loan. The beginning date is the date the borrower made
that payment or received the deferment on that loan, but no earlier than
July 1, 2009;
(iii) For a borrower who did not make a payment or receive an
economic hardship deferment on the loan under paragraph (f)(3)(i) or
(ii) of this section, the date the borrower made a payment under the
income-based repayment plan on the loan; or
(iv) If the borrower consolidates his or her eligible loans, the
date the borrower made a payment on the FFEL Consolidation Loan that met
the conditions in paragraph (f)(1) of this section.
(4) If a borrower satisfies the loan forgiveness requirements, the
Secretary repays the outstanding balance and accrued interest on the
FFEL Consolidation Loan described in paragraph (f)(3)(i), (iii), or (iv)
of this section or other eligible FFEL loans described in paragraph
(f)(3)(ii) or (iv) of this section.
(5) Any payments made on a defaulted loan are not made under a
qualifying repayment plan and are not counted toward the 25-year
forgiveness period.
(g) Loan forgiveness processing and payment. (1) The loan holder
determines when a borrower has met the
[[Page 70]]
loan forgiveness requirements under paragraph (f) of this section and
does not require the borrower to submit a request for loan forgiveness.
No later than six months prior to the anticipated date that the borrower
will meet the loan forgiveness requirements, the loan holder must send
the borrower a written notice that includes--
(i) An explanation that the borrower is approaching the date that he
or she is expected to meet the requirements to receive loan forgiveness;
(ii) A reminder that the borrower must continue to make the
borrower's scheduled monthly payments; and
(iii) General information on the current treatment of the
forgiveness amount for tax purposes, and instructions for the borrower
to contact the Internal Revenue Service for more information.
(2) No later than 60 days after the loan holder determines that a
borrower qualifies for loan forgiveness, the loan holder must request
payment from the guaranty agency.
(3) If the loan holder requests payment from the guaranty agency
later than the period specified in paragraph (g)(2) of this section,
interest that accrues on the discharged amount after the expiration of
the 60-day filing period is ineligible for reimbursement by the
Secretary, and the holder must repay all interest and special allowance
received on the discharged amount for periods after the expiration of
the 60-day filing period. The holder cannot collect from the borrower
any interest that is not paid by the Secretary under this paragraph.
(4)(i) Within 45 days of receiving the holder's request for payment,
the guaranty agency must determine if the borrower meets the eligibility
requirements for loan forgiveness under this section and must notify the
holder of its determination.
(ii) If the guaranty agency approves the loan forgiveness, it must,
within the same 45-day period required under paragraph (g)(4)(i) of this
section, pay the holder the amount of the forgiveness.
(5) After being notified by the guaranty agency of its determination
of the eligibility of the borrower for loan forgiveness, the holder
must, within 30 days--
(i) Inform the borrower of the determination and, if appropriate,
that the borrower's repayment obligation on the loans is satisfied; and
(ii) Provide the borrower with the information described in
paragraph (g)(1)(iii) of this section.
(6)(i) The holder must apply the payment from the guaranty agency
under paragraph (g)(4)(ii) of this section to satisfy the outstanding
balance on those loans subject to income-based forgiveness; or
(ii) If the forgiveness amount exceeds the outstanding balance on
the eligible loans subject to forgiveness, the loan holder must refund
the excess amount to the guaranty agency.
(7) If the guaranty agency does not pay the forgiveness claim, the
lender will continue the borrower in repayment on the loan. The lender
is deemed to have exercised forbearance of both principal and interest
from the date the borrower's repayment obligation was suspended until a
new payment due date is established. Unless the denial of the
forgiveness claim was due to an error by the lender, the lender may
capitalize any interest accrued and not paid during this period, in
accordance with Sec. 682.202(b).
(8) The loan holder must promptly return to the sender any payment
received on a loan after the guaranty agency pays the loan holder the
amount of loan forgiveness.
(Approved by the Office of Management and Budget under control number
1845-NEWA)
(Authority: 20 U.S.C. 1098e)
[73 FR 63249, Oct. 23, 2008, as amended at 74 FR 55995, Oct. 29, 2009;
77 FR 66128, Nov. 1, 2012]
Sec. 682.216 Teacher loan forgiveness program.
(a) General. (1) The teacher loan forgiveness program is intended to
encourage individuals to enter and continue in the teaching profession.
For new borrowers, the Secretary repays the amount specified in this
paragraph on the borrower's subsidized and unsubsidized Federal Stafford
Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, and in
certain cases,
[[Page 71]]
Federal Consolidation Loans or Direct Consolidation Loans. The
forgiveness program is only available to a borrower who has no
outstanding loan balance under the FFEL Program or the Direct Loan
Program on October 1, 1998 or who has no outstanding loan balance on the
date he or she obtains a loan after October 1, 1998.
(2)(i) The borrower must have been employed at an eligible
elementary or secondary school that serves low-income families or by an
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. The required
five years of teaching may include any combination of qualifying
teaching service at an eligible elementary or secondary school or an
eligible educational service agency.
(ii) Teaching at an eligible elementary or secondary school may be
counted toward the required five consecutive complete academic years
only if at least one year of teaching was after the 1997-1998 academic
year.
(iii) Teaching for an educational service agency may be counted
toward the required five consecutive complete academic years only if the
consecutive five-year period includes qualifying service at an eligible
educational service agency performed after the 2007-2008 academic year.
(3) All borrowers eligible for teacher loan forgiveness may receive
loan forgiveness of up to a combined total of $5,000 on the borrower's
eligible FFEL and Direct Loan Program loans.
(4) A borrower may receive loan forgiveness of up to a combined
total of $17,500 on the borrower's eligible FFEL and Direct Loan Program
loans if the borrower was employed for five consecutive years--
(i) At an eligible secondary school as a highly qualified
mathematics or science teacher, or for an eligible educational service
agency as a highly qualified teacher of mathematics or science to
secondary school students; or
(ii) At an eligible elementary or secondary school or educational
service agency as a special education teacher.
(5) The loan for which the borrower is seeking forgiveness must have
been made prior to the end of the borrower's fifth year of qualifying
teaching service.
(b) Definitions. The following definitions apply to this section:
Academic year means one complete school year at the same school, or
two complete and consecutive half years at different schools, or two
complete and consecutive half years from different school years at
either the same school or different schools. Half years exclude summer
sessions and generally fall within a twelve-month period. For schools
that have a year-round program of instruction, a minimum of nine months
is considered an academic year.
Educational service agency means a regional public multiservice
agency authorized by State statute to develop, manage, and provide
services or programs to local educational agencies, as defined in
section 9101 of the Elementary and Secondary Education Act of 1965, as
amended.
Elementary school means a public or nonprofit private school that
provides elementary education as determined by State law or the
Secretary if that school is not in a State.
Full-time means the standard used by a State in defining full-time
employment as a teacher. For a borrower teaching in more than one
school, the determination of full-time is based on the combination of
all qualifying employment.
Highly qualified means highly qualified as defined in section 9101
of the Elementary and Secondary Education Act of 1965, as amended.
Secondary school means a public or nonprofit private school that
provides secondary education as determined by State law or the Secretary
if the school is not in a State.
Teacher means a person who provides direct classroom teaching or
classroom-type teaching in a non-classroom setting, including Special
Education teachers.
(c) Borrower eligibility. (1) A borrower who has been employed at an
elementary or secondary school or for an educational service agency as a
full-time teacher for five consecutive complete
[[Page 72]]
academic years may obtain loan forgiveness under this program if the
elementary or secondary school or educational service agency--
(i) Is in a school district that qualifies for funds under title I
of the Elementary and Secondary Education Act of 1965, as amended;
(ii) Has been selected by the Secretary based on a determination
that more than 30 percent of the school's or educational service
agency's total enrollment is made up of children who qualify for
services provided under title I; and
(iii) Is listed in the Annual Directory of Designated Low-Income
Schools for Teacher Cancellation Benefits. If this directory is not
available before May 1 of any year, the previous year's directory may be
used.
(2) The Secretary considers all elementary and secondary schools
operated by the Bureau of Indian Education (BIE) or operated on Indian
reservations by Indian tribal groups under contract with the BIE to
qualify as schools serving low-income students.
(3) If the school or educational service agency at which the
borrower is employed meets the requirements specified in paragraph
(c)(1) of this section for at least one year of the borrower's five
consecutive complete academic years of teaching and fails to meet those
requirements in subsequent years, those subsequent years of teaching
qualify for purposes of this section for that borrower.
(4) In the case of a borrower whose five consecutive complete years
of qualifying teaching service began before October 30, 2004, the
borrower--
(i) May receive up to $5,000 of loan forgiveness if the borrower--
(A) Demonstrated knowledge and teaching skills in reading, writing,
mathematics, and other areas of the elementary school curriculum, as
certified by the chief administrative officer of the eligible elementary
school or educational service agency where the borrower was employed; or
(B) Taught in a subject area that is relevant to the borrower's
academic major as certified by the chief administrative officer of the
eligible secondary school or educational service agency where the
borrower was employed.
(ii) May receive up to $17,500 of loan forgiveness if the borrower--
(A) Taught mathematics or science on a full-time basis at an
eligible secondary school, or taught mathematics or science to secondary
school students on a full-time basis for an eligible educational service
agency, and was a highly qualified mathematics or science teacher; or
(B) Taught as a special education teacher on a full-time basis to
children with disabilities at an eligible elementary or secondary school
or an educational service agency and was a highly qualified special
education teacher whose special education training corresponded to the
children's disabilities and who has demonstrated knowledge and teaching
skills in the content areas of the elementary or secondary school
curriculum.
(iii) Teaching service performed for an eligible educational service
agency may be counted toward the required five years of teaching only if
the consecutive five-year period includes qualifying service at an
eligible educational service agency performed after the 2007-2008
academic year.
(5) In the case of a borrower whose five consecutive years of
qualifying teaching service began on or after October 30, 2004, the
borrower--
(i) May receive up to $5,000 of loan forgiveness if the borrower
taught full time at an eligible elementary or secondary school or for an
educational service agency and was a highly qualified elementary or
secondary school teacher.
(ii) May receive up to $17,500 of loan forgiveness if the borrower--
(A) Taught mathematics or science on a full-time basis at an
eligible secondary school, or taught mathematics or science on a full-
time basis to secondary school students for an eligible educational
service agency, and was a highly qualified mathematics or science
teacher; or
(B) Taught as a special education teacher on a full-time basis to
children with disabilities at an eligible elementary or secondary school
or for an educational service agency and was a highly qualified special
education teacher whose special education training corresponded to the
children's disabilities
[[Page 73]]
and who has demonstrated knowledge and teaching skills in the content
areas of the elementary or secondary school curriculum.
(iii) Teaching service performed for an eligible educational service
agency may be counted toward the required five years of teaching only if
the consecutive five-year period includes qualifying service at an
eligible educational service agency performed after the 2007-2008
academic year.
(6) To qualify for loan forgiveness as a highly qualified teacher,
the teacher must have been a highly qualified teacher for all five years
of eligible teaching service.
(7) For teacher loan forgiveness applications received by the loan
holder on or after July 1, 2006, a teacher in a private, non-profit
elementary or secondary school who is exempt from State certification
requirements (unless otherwise applicable under State law) may qualify
for loan forgiveness under paragraphs (c)(3)(ii) or (c)(4) of this
section if--
(i) The private school teacher is permitted to and does satisfy
rigorous subject knowledge and skills tests by taking competency tests
in applicable grade levels and subject areas;
(ii) The competency tests are recognized by 5 or more States for the
purposes of fulfilling the highly qualified teacher requirements under
section 9101 of the Elementary and Secondary Education Act of 1965; and
(iii) The private school teacher achieves a score on each test that
equals or exceeds the average passing score for those 5 states.
(8) The academic year may be counted as one of the borrower's five
consecutive complete academic years if the borrower completes at least
one-half of the academic year and the borrower's employer considers the
borrower to have fulfilled his or her contract requirements for the
academic year for the purposes of salary increases, tenure, and
retirement if the borrower is unable to complete an academic year due
to--
(i) A return to postsecondary education, on at least a half-time
basis, that is directly related to the performance of the service
described in this section;
(ii) A condition that is covered under the Family and Medical Leave
Act of 1993 (FMLA) (29 U.S.C. 2601, et seq.); or
(iii) A call or order to active duty status for more than 30 days as
a member of a reserve component of the Armed Forces named in section
10101 of title 10, United States Code.
(9) A borrower's period of postsecondary education, qualifying FMLA
condition, or military active duty as described in paragraph (c)(7) of
this section, including the time necessary for the borrower to resume
qualifying teaching no later than the beginning of the next regularly
scheduled academic year, does not constitute a break in the required
five consecutive years of qualifying teaching service.
(10) A borrower who was employed as a teacher at more than one
qualifying school, for more than one qualifying educational service
agency, or at a combination of both during an academic year and
demonstrates that the combined teaching was the equivalent of full-time,
as supported by the certification of one or more of the chief
administrative officers of the schools or educational service agencies
involved, is considered to have completed one academic year of
qualifying teaching.
(11) A borrower is not eligible for teacher loan forgiveness on a
defaulted loan unless the borrower has made satisfactory repayment
arrangements to re-establish title IV eligibility, as defined in
Sec. 682.200.
(12) A borrower may not receive loan forgiveness for the same
qualifying teaching service under this section if the borrower receives
a benefit for the same teaching service under--
(i) Subtitle D of title I of the National and Community Service Act
of 1990;
(ii) 34 CFR 685.219; or
(iii) Section 428K of the Act.
(d) Forgiveness amount. (1) A qualified borrower is eligible for
forgiveness of up to $5,000, or up to $17,500 if the borrower meets the
requirements of paragraph (c)(4)(ii) or (c)(5)(ii) of this section. The
forgiveness amount is deducted from the aggregate amount of the
borrower's subsidized or unsubsidized Federal Stafford or Federal
Consolidation Loan obligation that is
[[Page 74]]
outstanding after the borrower completes his or her fifth consecutive
complete academic year of teaching as described in paragraph (c) of this
section. Only the outstanding portion of the consolidation loan that was
used to repay an eligible subsidized or unsubsidized Federal Stafford
Loan, an eligible Direct Subsidized Loan, or an eligible Direct
Unsubsidized Loan qualifies for loan forgiveness under this section.
(2) A borrower may not receive more than a total of $5,000, or
$17,500 if the borrower meets the requirements of paragraph (c)(4)(ii)
or (c)(5)(ii) of this section, in loan forgiveness for outstanding
principal and accrued interest under both this section and under section
34 CFR 685.217.
(3) The holder does not refund payments that were received from or
on behalf of a borrower who qualifies for loan forgiveness under this
section.
(e) Authorized forbearance during qualifying teaching service and
forgiveness processing. (1) A holder grants a forbearance--
(i) Under Sec. 682.211(h)(2)(ii)(C) and (h)(4)(iii), in annual
increments for each of the years of qualifying teaching service, if the
holder believes, at the time of the borrower's annual request, that the
expected cancellation amount will satisfy the anticipated remaining
outstanding balance on the loan at the time of the expected
cancellation;
(ii) For a period not to exceed 60 days while the holder is awaiting
a completed teacher loan forgiveness application from the borrower; and
(iii) For the period beginning on the date the holder receives a
completed loan forgiveness application to the date the holder receives
either a denial of the request or the loan forgiveness amount from the
guaranty agency, in accordance with paragraph (f) of this section.
(2) At the conclusion of a forbearance authorized under paragraph
(e)(1) of this section, the holder must resume collection activities and
may capitalize any interest accrued and not paid during the forbearance
period in accordance with Sec. 682.202(b).
(3) Nothing in paragraph (e) of this section restricts holders from
offering other forbearance options to borrowers who do not meet the
requirements of paragraph (e)(1)(i) of this section.
(f) Application and processing. (1) A borrower, after completing the
qualifying teaching service, requests loan forgiveness from the holder
of the loan on a form approved by the Secretary.
(2)(i) The holder must file a request for payment with the guaranty
agency on a teacher loan forgiveness amount no later than 60 days after
the receipt, from the borrower, of a completed teacher loan forgiveness
application.
(ii) When filing a request for payment on a teacher loan
forgiveness, the holder must provide the guaranty agency with the
completed loan forgiveness application submitted by the borrower and any
required supporting documentation.
(iii) If the holder files a request for payment later than 60 days
after the receipt of the completed teacher loan forgiveness application
form, interest that accrued on the loan forgiveness amount after the
expiration of the 60-day filing period is ineligible for reimbursement
by the Secretary, and the holder must repay all interest and special
allowance received on the loan forgiveness amount for periods after the
expiration of the 60-day filing period. The holder cannot collect from
the borrower any interest that is not paid by the Secretary under this
paragraph.
(3)(i) Within 45 days of receiving the holder's request for payment,
the guaranty agency must determine if the borrower meets the eligibility
requirements for loan forgiveness under this section and must notify the
holder of its determination of the borrower's eligibility for loan
forgiveness under this section.
(ii) If the guaranty agency approves the loan forgiveness, it must,
within the same 45-day period, pay the holder the amount of the laon
forgiveness, up to $17,500, subject to paragraphs (c)(11), (d)(1),
(d)(2) and (f)(2)(iii) of this section.
(4) After being notified by the guaranty agency of its determination
of the eligibility of the borrower for the loan forgiveness, the holder
must, within 30 days, inform the borrower of the determination. If the
loan forgiveness is approved, the holder must also provide
[[Page 75]]
the borrower with information regarding any new repayment terms of
remaining loan balances.
(5) Unless otherwise instructed by the borrower, the holder must
apply the proceeds of the teacher forgiveness first to any outstanding
unsubsidized Federal Stafford loan balances, next to any outstanding
subsidized Federal Stafford loan balances, then to any eligible
outstanding Federal Consolidation loan balances.
(g) Claims for reimbursement from the Secretary on loans held by
guaranty agencies. In the case of a teacher loan forgiveness applied to
a defaulted loan held by the guaranty agency, the Secretary pays the
guaranty agency a percentage of the amount forgiven that is equal to the
complement of the reinsurance percentage paid on the loan. The payment
of up to $5,000, or up to $17,500, may also include interest that
accrues on the forgiveness amount during the period from the date on
which the guaranty agency received payment from the Secretary on a
default claim to the date on which the guaranty agency determines that
the borrower is eligible for the teacher loan forgiveness.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078-10)
[65 FR 65627, Nov. 1, 2000, as amended at 66 FR 34763, June 29, 2001; 71
FR 45702, Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 73 FR 35495, June 23,
2008. Redesignated at 73 FR 63249, Oct. 23, 2008; 74 FR 55995, Oct. 29,
2009; 78 FR 65813, Nov. 1, 2013]
Subpart C_Federal Payments of Interest and Special Allowance
Sec. 682.300 Payment of interest benefits on Stafford and
Consolidation loans.
(a) General. The Secretary pays a lender, on behalf of a borrower, a
portion of the interest on a subsidized Stafford loan and on all or a
portion of a qualifying Consolidation loan that meets the requirements
under Sec. 682.301. This payment is known as interest benefits.
(b) Covered interest. (1) The Secretary pays a lender the interest
that accrues on an eligible Stafford loan--
(i) During all periods prior to the beginning of the repayment
period, except as provided in paragraphs (b)(2) and (c) of this section.
(ii) During any period when the borrower has an authorized
deferment, and, if applicable, a post-deferment grace period;
(iii) During the repayment period for loans described in paragraph
(d)(2) of this section; and
(iv) During a period that does not exceed three consecutive years
from the established repayment period start date on each loan under the
income-based repayment plan and that excludes any period during which
the borrower receives an economic hardship deferment, if the borrower's
monthly payment amount under the plan is not sufficient to pay the
accrued interest on the borrower's loan or on the qualifying portion of
the borrower's Consolidation Loan.
(2) The Secretary's obligation to pay interest benefits on an
otherwise eligible loan terminates on the earliest of--
(i) The date the borrower's loan is repaid;
(ii) The date the disbursement check is returned uncashed to the
lender, or the 120th day after the date of that disbursement if--
(A) The check for the disbursement has not been cashed on or before
that date; or
(B) The proceeds of the disbursement made by electronic funds
transfer or master check have not been released from the account
maintained by the school on or before that date;
(iii) The date of default by the borrower;
(iv) The date the lender receives payment of a claim for loss on the
loan;
(v) The date the borrower's loan is discharged in bankruptcy;
(vi) The date the lender determines that the borrower has died or
has become totally and permanently disabled;
(vii) The date the loan ceases to be guaranteed or ceases to be
eligible for reinsurance under this part, with respect to that portion
of the loan that ceases to be guaranteed or reinsured, regardless of
whether the lender has filed a claim for loss on the loan with the
guarantor;
[[Page 76]]
(viii) The date the lender determines that the borrower is eligible
for loan discharge under Sec. 682.402(d), (e), or (l);
(ix) The date on which the lender determines the loan is legally
unenforceable based on the receipt of an identity theft report under
Sec. 682.208(b)(3); or
(x) The date the borrower's payment under the income-based repayment
plan is sufficient to pay the accrued interest on the borrower's loan or
the qualifying portion of the borrower's Consolidation Loan.
(3) Section 682.412 sets forth circumstances under which a lender
may be required to repay interest benefits received on a loan guaranteed
by a guaranty agency.
(c) Interest not covered. The Secretary does not pay--
(1) Interest for which the borrower is not otherwise liable; or
(2) Interest paid on behalf of the borrower by a guaranty agency.
(d) Rate. (1) Except as provided in paragraph (d)(2) of this
section, the Secretary pays the lender at the actual interest rate on a
loan provided that the actual interest rate does not exceed the
applicable interest rate.
(2) For a loan disbursed prior to December 15, 1968, or subject to a
binding commitment made prior to that date, the Secretary pays an amount
during the repayment period equivalent to 3 percent per year of the
unpaid principal amount of the loan.
(Authority: 20 U.S.C. 1078, 1082)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25746, May 17, 1994; 59
FR 33352, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 64 FR 18978, Apr.
16, 1999; 64 FR 58959, Nov. 1, 1999; 66 FR 34763, June 29, 2001; 71 FR
45703, Aug. 9, 2006; 72 FR 62002, Nov. 1, 2007; 73 FR 63252, Oct. 23,
2008; 78 FR 65813, Nov. 1, 2013]
Sec. 682.301 Eligibility of borrowers for interest benefits on
Stafford and Consolidation loans.
(a) General. (1) To qualify for benefits on a Stafford loan, a
borrower must demonstrate financial need in accordance with Part F of
the Act.
(2) The Secretary considers a member of a religious order, group,
community, society, agency, or other organization who is pursuing a
course of study at an institution of higher education to have no
financial need if that organization--
(i) Has as its primary objective the promotion of ideals and beliefs
regarding a Supreme Being;
(ii) Requires its members to forego monetary or other support
substantially beyond the support it provides; and
(iii) (A) Directs the member to pursue the course of study; or
(B) Provides subsistence support to its members.
(3) A Consolidation loan borrower qualifies for interest benefits
during authorized periods of deferment on the portion of the loan that
does not represent HEAL loans if the loan application was received by
the lender--
(i) On or after January 1, 1993 but prior to August 10, 1993;
(ii) On or after August 10, 1993, but prior to November 13, 1997 if
the loan consolidates only subsidized Stafford loans; and
(iii) On or after November 13, 1997, for the portion of the loan
that repaid subsidized FFEL loans and Direct Subsidized Loans.
(b) Application for interest benefits. To apply for interest
benefits on a Stafford loan, the student, or the school at the direction
of the student, must submit a statement to the lender pursuant to
Sec. 682.603. The student must qualify for interest benefits if the
eligible institution has determined and documented the student's amount
of need for a loan based on the student's estimated cost of attendance,
estimated financial assistance, and expected family contribution as
determined under part F of the Act.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078, 1082, 1087-1)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59
FR 33352, June 28, 1994; 64 FR 18978, Apr. 16, 1999; 64 FR 58959, Nov.
1, 1999; 78 FR 65813, Nov. 1, 2013]
Sec. 682.302 Payment of special allowance on FFEL loans.
(a) General. The Secretary pays a special allowance to a lender on
an eligible FFEL loan. The special allowance is a percentage of the
average unpaid principal balance of a loan, including capitalized
interest computed in accordance with paragraphs (c) and (f) of this
section. Special allowance is also
[[Page 77]]
paid on the unpaid accrued interest of a loan covered by
Sec. 682.215(b)(7) computed in the same manner as in paragraphs (c) and
(f), as applicable, except for this purpose the applicable interest rate
shall be deemed to be zero.
(b) Eligible loans. (1) Except for non-subsidized Federal Stafford
loans disbursed on or after October 1, 1981, for periods of enrollment
beginning prior to October 1, 1992, or as provided in paragraphs (b)(2),
(b)(3), or (e)(1) of this section, FFEL loans that otherwise meet
program requirements are eligible for special allowance payments.
(2) For a loan made under the Federal SLS or Federal PLUS Program on
or after July 1, 1987 and prior to July 1, 1994, and for any Federal
PLUS loan made on or after July 1, 1998 or on or after January 1, 2000
for any period prior to April 1, 2006, or under Sec. 682.209(e) or (f),
no special allowance is paid for any period for which the interest rate
calculated prior to applying the interest rate maximum for that loan
does not exceed--
(i) 12 percent in the case of a Federal SLS or PLUS loan made prior
to October 1, 1992;
(ii) 11 percent in the case of a Federal SLS loan made on or after
October 1, 1992;
(iii) 10 percent in the case of a Federal PLUS loan made on or after
October 1, 1992; or
(iv) 9 percent in the case of a Federal PLUS loan made on or after
July 1, 1998.
(3) In the case of a subsidized Stafford loan disbursed on or after
October 1, 1992 and prior to July 1, 2010, the Secretary does not pay
special allowance on a disbursement if--
(i) The disbursement check is returned uncashed to the lender or the
lender is notified that the disbursement made by electronic funds
transfer or master check will not be released from the restricted
account maintained by the school; or
(ii) The check for the disbursement has not been negotiated before
the 120th day after the date of disbursement or the disbursement made by
electronic funds transfer or master check has not been released from the
restricted account maintained by the school before that date.
(c) Rate. (1) Except as provided in paragraph (c)(2), (c)(3), or (e)
of this section, the special allowance rate for an eligible loan during
a 3-month period is calculated by--
(i) Determining the average of the bond equivalent rates of--
(A) The quotes of the 3-month commercial paper (financial) rates in
effect for each of the days in such quarter as reported by the Federal
Reserve in Publication H-15 (or its successor) for such 3-month period
for a loan for which the first disbursement is made on or after January
1, 2000; or
(B) The 91-day Treasury bills auctioned during the 3-month period
for a loan for which the first disbursement is made prior to January 1,
2000;
(ii) Subtracting the applicable interest rate for that loan;
(iii) Adding--
(A)(1) 2.34 percent to the resulting percentage for a Federal
Stafford loan for which the first disbursement is made on or after
January 1, 2000;
(2) 2.64 percent to the resulting percentage for a Federal PLUS loan
for which the first disbursement is made on or after January 1, 2000;
(3) 2.64 percent to the resulting percentage for a Federal
Consolidation Loan that was made based on an application received by the
lender on or after January 1, 2000;
(4) 1.74 percent to the resulting percentage for a Federal Stafford
loan for which the first disbursement is made on or after January 1,
2000 during the borrower's in-school, grace, and authorized period of
deferment;
(5) 2.8 percent to the resulting percentage for a Federal Stafford
loan for which the first disbursement is made on or after July 1, 1998
and prior to January 1, 2000;
(6) 2.2 percent to the resulting percentage for a Federal Stafford
loan for which the first disbursement is made on or after July 1, 1998
and prior to January 1, 2000, during the borrower's in-school, grace,
and authorized period of deferment;
(7) 2.5 percent to the resulting percentage for a Federal Stafford
loan for which the first disbursement is made on or after July 1, 1995
and prior to July 1, 1998 for interest that accrues
[[Page 78]]
during the borrower's in-school, grace, and authorized period of
deferment;
(B) 3.1 percent to the resulting percentage for--
(1) A Federal Stafford Loan made on or after October 1, 1992 and
prior to July 1, 1998, except as provided in paragraph (c)(1)(iii)(A)(7)
of this section;
(2) A Federal SLS Loan made on or after October 1, 1992;
(3) A Federal PLUS Loan made on or after October 1, 1992 and prior
to July 1, 1998;
(4) A Federal PLUS Loan made on or after July 1, 1998 and prior to
October 1, 1998, except that no special allowance shall be paid any
quarter unless the rate determined under Sec. 682.202(a)(2)(v)(A)
exceeds 9 percent;
(5) A Federal PLUS loan made on or after October 1, 1998 and prior
to January 1, 2000, except that no special allowance shall be paid
during any quarter unless the rate determined under
Sec. 682.202(a)(2)(v)(A) exceeds 9 percent;
(6) A Federal Consolidation Loan for which the application was
received by the lender prior to January 1, 2000, except that no special
allowance shall be paid during any quarter on a loan for which the
application was received on or after October 1, 1998 unless the average
of the bond equivalent rate of the 91-day Treasury bills auctioned
during that quarter, plus 3.1 percent, exceeds the rate determined under
Section 682.202(a)(4)(iv);
(C) 3.25 percent to the resulting percentage, for a loan made on or
after November 16, 1986, but prior to October 1, 1992;
(D) 3.25 percent to the resulting percentage, for a loan made on or
after October 17, 1986 but prior to November 16, 1986, for a period of
enrollment beginning on or after November 16, 1986;
(E) 3.5 percent to the resulting percentage, for a loan made prior
to October 17, 1986, or a loan described in paragraph (c)(2) of this
section; or
(F) 3.5 percent to the resulting percentage, for a loan made on or
after October 17, 1986 but prior to November 16, 1986, for a period of
enrollment beginning prior to November 16, 1986;
(iv) Rounding the result upward to the nearest one-eighth of 1
percent, for a loan made prior to October 1, 1981; and
(v) Dividing the resulting percentage by 4.
(2) The special allowance rate determined under paragraph
(c)(1)(iii)(E) of this section applies to loans made or purchased from
funds obtained from the issuance of an obligation of the--
(i) Maine Educational Loan Marketing Corporation to the Student Loan
Marketing Association pursuant to an agreement entered into on January
31, 1984; or
(ii) South Carolina Student Loan Corporation to the South Carolina
National Bank pursuant to an agreement entered into on July 30, 1986.
(3)(i) Subject to paragraphs (c)(3)(iii), (c)(3)(iv), and (e) of
this section, the special allowance rate is that provided in paragraph
(c)(3)(ii) of this section for a loan made or guaranteed on or after
October 1, 1980 that was made or purchased with funds obtained by the
holder from--
(A) The proceeds of tax-exempt obligations originally issued prior
to October 1, 1993;
(B) Collections or payments by a guarantor on a loan that was made
or purchased with funds obtained by the holder from obligations
described in paragraph (c)(3)(i)(A) of this section;
(C) Interest benefits or special allowance payments on a loan that
was made or purchased with funds obtained by the holder from obligations
described in paragraph (c)(3)(i)(A) of this section;
(D) The sale of a loan that was made or purchased with funds
obtained by the holders from obligations described in paragraph
(c)(3)(i)(A) of this section; or
(E) The investment of the proceeds of obligations described in
paragraph (c)(3)(i)(A) of this section.
(ii) The special allowance rate for a loan described in paragraph
(c)(3)(i) is one-half of the rate calculated under paragraph (c)(1) of
this section, except that in applying paragraph (c)(1)(iii), 3.5 percent
is substituted for the percentages specified therein.
(iii) The special allowance rate applicable to loans described in
paragraph (c)(3)(i) of this section that are made prior to October 1,
1992, may not be less than--
[[Page 79]]
(A) 2.5 percent per year on eligible loans for which the applicable
interest rate is 7 percent;
(B) 1.5 percent per year on eligible loans for which the applicable
interest rate is 8 percent; or
(C) One-half of 1 percent per year on eligible loans for which the
applicable rate is 9 percent.
(iv) The special allowance rate applicable to loans described in
paragraph (c)(3)(i) of this section that are made on or after October 1,
1992, may not be less than 9.5 percent minus the applicable interest
rate.
(4) Loans made or purchased with funds obtained by the holder from
the issuance of tax-exempt obligations originally issued on or after
October 1, 1993, and loans made with funds derived from default
reimbursement collections, interest, or other income related to eligible
loans made or purchased with those tax-exempt funds, do not qualify for
the minimum special allowance rate specified in paragraph (c)(3)(iii) or
(iv) of this section, and are not subject to the 50 percent limitation
on the maximum rate otherwise applicable to loans made with tax-exempt
funds.
(5) For purposes of paragraphs (c)(3) and (c)(4), a loan is
purchased with funds described in those paragraphs when the loan is
refinanced in consideration of those funds.
(d) Termination of special allowance payments on a loan. (1) The
Secretary's obligation to pay special allowance on a loan terminates on
the earliest of--
(i) The date a borrower's loan is repaid;
(ii) The date a borrower's loan check is returned uncashed to the
lender;
(iii) The date a lender receives payment on a claim for loss on the
loan;
(iv) The date a loan ceases to be guaranteed or ceases to be
eligible for reinsurance under this part, with respect to that portion
of the loan that ceases to be guaranteed or reinsured, regardless of
whether the lender has filed a claim for loss on the loan with the
guarantor;
(v) The 60th day after the borrower's default on the loan, unless
the lender files a claim for loss on the loan with the guarantor
together with all required documentation, on or before the 60th day;
(vi) The 120th day after the date of disbursement, if--
(A) The loan check has not been cashed on or before that date; or
(B) The loan proceeds disbursed by electronic funds transfer or
master check have not been released from the restricted account
maintained by the school on or before that date;
(vii) The 30th day after the date the lender received a returned
claim from the guaranty agency on a loan submitted by the deadline
specified in (d)(1)(v) of this section for loss on the loan to the
lender due solely to inadequate documentation unless the lender files a
claim for loss on the loan with the guarantor, together with all
required documentation, prior to the 30th day; or
(viii) The date on which the lender determines the loan is legally
unenforceable based on the receipt of an identity theft report under
Sec. 682.208(b)(3).
(2) In the case of a loan disbursed on or after October 1, 1992 and
prior to July 1, 2010, the Secretary does not pay special allowance on a
loan if--
(i) The disbursement check is returned uncashed to the lender or the
lender is notified that the disbursement made by electronic funds
transfer or master check will not be released from the account
maintained by the school; or
(ii) The check for the disbursement has not been negotiated before
the 120th day after the date of disbursement or the disbursement made by
electronic funds transfer or master check has not been released from the
account maintained by the school before that date.
(3) Section 682.413 sets forth the circumstances under which a
lender may be required to repay the special allowance received on a loan
guaranteed by a guaranty agency.
(e) Limits on special allowance payments on loans made or purchased
with funds derived from tax-exempt obligations--(1) General. (i) The
Secretary pays a special allowance on a loan described in paragraph
(c)(3) or (c)(4) of this section that is held by or on behalf of an
Authority only if the loan meets
[[Page 80]]
the requirements of section 438(e) of the Act.
(ii) The Secretary pays a special allowance at the rate prescribed
in paragraph (c)(1) or (c)(3) of this section on a loan described in
paragraph (c)(3)(i) of this section that is held by or on behalf of an
Authority in accordance with paragraphs (e)(2) through (e)(5) of this
section, as applicable. References to ``loan'' or ``loans'' in
paragraphs (e)(2) through (e)(5) include only loans described in
paragraph (c)(3)(i).
(2) Effect of Refinancing on Special Allowance Payments. Except as
provided in paragraphs (e)(3) through (e)(5) of this section--
(i) The Secretary pays a special allowance at the rate prescribed in
paragraph (c)(3) of this section to an Authority that holds a legal or
equitable interest in the loan that is pledged or otherwise transferred
in consideration of--
(A) Funds listed in paragraph (c)(3)(i) of this section;
(B) Proceeds of a tax-exempt refunding obligation that refinances a
debt that--
(1) Was first incurred pursuant to a tax-exempt obligation
originally issued prior to October 1, 1993;
(2) Has been financed continuously by tax-exempt obligation.
(ii) The Secretary pays a special allowance to an Authority that
holds a legal or equitable interest in the loan that is pledged or
otherwise transferred in consideration of funds other than those
specified in paragraph (e)(2)(i) of this section either--
(A) At the rate prescribed in paragraph (c)(1) of this section, if--
(1) The prior tax-exempt obligation is retired; or
(2) The prior tax-exempt obligation is defeased by means of
obligations that the Authority certifies in writing to the Secretary
bears a yield that does not exceed the yield restrictions of section 148
of the Internal Revenue Code and the regulations thereunder, or
(B) At the rate prescribed in paragraph (c)(3) of this section.
(3) Loans affected by transactions or events after September 30,
2004. The Secretary pays a special allowance to an Authority at the rate
prescribed in paragraph (c)(1) of this section if, after September 30,
2004--
(i) The loan is refinanced with funds other than those listed in
paragraph (e)(2)(i) of this section;
(ii) The loan is sold or transferred to any other holder; or
(iii)(A) The loan is financed by a tax-exempt obligation included in
the sources in paragraph (e)(2)(i), and
(B) That obligation matures, is refunded, is defeased, or is
retired, whichever occurs earliest.
(4) Loans Affected by Transactions After February 7, 2006. Except as
provided in paragraph (e)(5) or (f) of this section, the Secretary pays
a special allowance at the rate prescribed in paragraph (c)(1) of this
section on any loan--
(i) That was made or purchased on or after February 8, 2006, or
(ii) That was not earning, on February 8, 2006, a quarterly rate of
special allowance determined under paragraph (c)(3) of this section.
(5) Loans affected by transactions after December 30, 2010. (i) The
Secretary pays a special allowance to a holder described in paragraph
(e)(5)(ii) of this section at the rate prescribed in paragraph (c)(3) of
this section only on a loan--
(A) That was made or purchased prior to December 31, 2010, or
(B) That was earning, before December 31, 2010, a quarterly rate of
special allowance determined under paragraph (c)(3) of this section.
(ii) A holder for purposes of this paragraph is an entity that--
(A) On February 8, 2006 and during the quarter for which special
allowance is determined under this paragraph--
(1) Is a unit of State or local government or a private nonprofit
entity, and
(2) Is not owned or controlled by, or under common ownership or
control by, a for-profit entity; and
(B) In the most recent quarterly special allowance payment prior to
September 30, 2005, held, directly or through any subsidiary, affiliate,
or trustee, a total unpaid balance of principal of $100,000,000 or less
for which special allowance was determined and paid under paragraph
(c)(3) of this section.
[[Page 81]]
(f) Special allowance rates for loans made on or after October 1,
2007. With respect to any loan for which the first disbursement of
principal is made on or after October 1, 2007, other than a loan
described in paragraph (e)(5) of this section, the special allowance
rate for an eligible loan made during a 3-month period is calculated
according to the formulas described in paragraphs (f)(1) and (f)(2) of
this section.
(1) Except as provided in paragraph (f)(2) of this section, the
special allowance formula shall be computed by--
(i) Determining the average of the bond equivalent rates of the
quotes of the 3-month commercial paper (financial) rates in effect for
each of the days in such quarter as reported by the Federal Reserve in
Publication H-15 (or its successor) for such 3-month period;
(ii) Subtracting the applicable interest rate for that loan;
(iii) Adding--
(A) 1.79 percent to the resulting percentage for a Federal Stafford
loan;
(B) 1.19 percent to the resulting percentage for a Federal Stafford
Loan during the borrower's in-school period, grace period and authorized
period of deferment;
(C) 1.79 percent to the resulting percentage for a Federal PLUS
loan; and
(D) 2.09 percent to the resulting percentage for a Federal
Consolidation loan; and
(iv) Dividing the resulting percentage by 4.
(2) For loans held by an eligible not-for-profit holder as defined
in paragraph (f)(3) of this section, the special allowance formula shall
be computed by--
(i) Determining the average of the bond equivalent rates of the
quotes of the 3-month commercial paper (financial) rates in effect for
each of the days in such quarter as reported by the Federal Reserve in
Publication H-15 (or its successor) for such 3-month period;
(ii) Subtracting the applicable interest rate for that loan;
(iii) Adding--
(A) 1.94 percent to the resulting percentage for a Federal Stafford
loan;
(B) 1.34 percent to the resulting percentage for a Federal Stafford
Loan during the borrower's in-school period, grace period and authorized
period of deferment;
(C) 1.94 percent to the resulting percentage for a Federal PLUS
loan; and
(D) 2.24 percent to the resulting percentage for a Federal
Consolidation loan; and
(iv) Dividing the resulting percentage by 4.
(3) Eligible Not-for-Profit Holder. (i) For purposes of this
section, the term ``eligible not-for-profit holder'' means an eligible
lender under section 435(d) of the Act (except an eligible institution)
that requests special allowance payments from the Secretary and that
is--
(A) A State, or a political subdivision, authority, agency, or other
instrumentality thereof, including such entities that are eligible to
issue bonds described in 26 CFR 1.103-1, or section 144(b) of the
Internal Revenue Code of 1986;
(B) An entity described in section 150(d)(2) of the Internal Revenue
Code of 1986 that has not made the election described in section
150(d)(3) of that Code;
(C) An entity described in section 501(c)(3) of the Internal Revenue
Code of 1986; or
(D) A trustee acting as an eligible lender on behalf of an entity
that is not an eligible institution and that is a State or non-profit
entity or a special purpose entity for a State or non-profit entity.
(ii) For purposes of paragraph (f)(3) of this section--
(A) The term ``State or non-profit entity'' means an entity
described in paragraph (f)(3)(i)(A), (f)(3)(i)(B), or (f)(3)(i)(C) of
this section, regardless of whether such entity is an eligible lender
under section 435(d) of that Act.
(B) The term ``special purpose entity'' means an entity established
for the limited purpose of financing the acquisition of loans from or at
the direction of a State or non-profit entity, or servicing and
collecting such loans, and that is--
(1) An entity established by such State or non-profit entity, or
(2) An entity established by an entity described in paragraph
(f)(3)(ii)(B)(1) of this section.
[[Page 82]]
(C) A special purpose entity is a ``related special purpose entity''
with respect to a State or non-profit entity if it holds any interest in
loans acquired from or at the direction of that State or non-profit
entity or from a special purpose entity established by that State or
non-profit entity.
(iii) An entity that otherwise qualifies under paragraph (f)(3)(i)
of this section shall not be considered an eligible not-for-profit
holder unless such entity--
(A) Was a State or non-profit entity and an eligible lender under
section 435(d) of the Act, other than a school lender, and on or before
September 27, 2007 had made or acquired a FFEL loan, unless the State
waives this requirement under paragraph (f)(3)(iv) of this section; or
(B) Is acting as an eligible lender trustee on behalf of a State or
non-profit entity that was the sole beneficial owner of a loan eligible
for a special allowance payment on September 27, 2007.
(iv) Subject to the provisions of section 435(d)(1)(D) of the Act, a
State may waive the requirement of paragraph (f)(3)(iii)(A) of this
section to identify a new eligible not-for-profit holder pursuant to a
written application filed in accordance with paragraph (f)(3)(x) of this
section, for the purposes of carrying out a public purpose of the State,
except that a State may not designate a trustee for this purpose.
(v) A State or non-profit entity, and a trustee to the extent acting
on behalf of such an entity or its related special purpose entity, shall
not be an eligible not-for-profit holder if the State or non-profit
entity or its related special purpose entity is owned or controlled, in
whole or in part, by a for-profit entity. For purposes of this
paragraph, a for-profit entity has ownership and control of a State or
non-profit entity, or its related special purpose entity, if--
(A) The for-profit entity is a member or shareholder of a State or
non-profit entity or related special purpose entity that is a membership
or stock corporation, and the for-profit entity has sufficient power to
control the State or non-profit entity or its special purpose entity;
(B) The for-profit-entity employs or appoints individuals that
together constitute a majority of the State, non-profit, or special
purpose entity's board of trustees or directors, or a majority of such
board's audit committee, executive committee, or compensation committee;
or
(C) For a State, non-profit, or special purpose entity that has no
board of trustees or directors and associated committees of such, the
for-profit entity is authorized by law, agreement, or otherwise to
approve decisions by the entity regarding its audits, investments,
hiring, retention, or compensation of officials, unless the Secretary
determines that the particular authority to approve such decisions is
not likely to affect the integrity of those decisions.
(vi) For purposes of paragraph (f)(3) of this section--
(A) A for-profit entity has sufficient power to control a State or
non-profit entity or its related special purpose entity, if it possesses
directly, or represents, either alone or together with other persons,
under a voting trust, power of attorney, proxy, or similar agreement,
one or more persons who hold, individually or in combination with the
other person represented or the persons representing them, a sufficient
voting percentage of the membership interests or voting securities to
direct or cause the direction of the management and policies of the
State or non-profit entity or its related special purpose entity.
(B) An individual is deemed to be employed or appointed by a for-
profit entity if the for-profit entity employs a family member, as
defined in Sec. 600.21(f), of that individual, unless the Secretary
determines that the particular nature of the family member's employment
is not likely to affect the integrity of decisions made by the board or
committee member.
(C) ``Beneficial owner'' (including ``beneficial ownership'' and
``owner of a beneficial interest'') means the entity that has those
rights with respect to the loan or income from the loan that are the
normal incidents of ownership, including the right to receive, possess,
use, and sell or otherwise exercise control over the loan and the income
from
[[Page 83]]
the loan, subject to any rights granted and limitations imposed in
connection with or related to the granting of a security interest
described in paragraph (f)(3)(ix) of this section, and subject to any
limitations on such rights under the Act as a result of such entity not
qualifying as an eligible lender or holder under the Act.
(D) ``Sole owner'' means the entity that has all the rights
described in paragraph (f)(3)(vi)(C) of this section, which may be
subject to the rights and limitations described in paragraph
(f)(3)(vi)(C), to the exclusion of any other entity, with respect both
to a loan and the income from a loan.
(vii)(A) No State or non-profit entity, and no trustee to the extent
acting on behalf of such a State or non-profit entity or its related
special purpose entity, shall be an eligible not-for-profit holder with
respect to any loan or income from any loan on which payment is claimed
at the rate established under paragraph (f)(2) of this section, unless
such State or non-profit entity or its related special purpose entity is
the sole owner of the beneficial interest in such loan and the income
from such loan.
(B) A State or non-profit entity that had sole ownership of the
beneficial interest in a loan and the income from such loan is
considered to retain that sole ownership for purposes of paragraph
(f)(3)(vii)(A) of this section if such entity transferred beneficial
interest in the loan to its related special purpose entity and no party
other than that State or non-profit entity or its related special
purpose entity owns any beneficial interest or residual ownership
interest in the loan or income from the loan.
(viii)(A) A trustee described in paragraph (f)(3)(i)(D) of this
section shall not receive compensation as consideration for acting as an
eligible lender on behalf of a State or non-profit entity or its related
special purpose entity in excess of reasonable and customary fees paid
for providing the particular service or services that the trustee
undertakes to provide to such entity.
(B) Fees are reasonable and customary for purposes of paragraph
(f)(3)(viii) of this section, if they do not exceed the amounts received
by the trustee for similar services with regard to similar portfolios of
loans of that State or non-profit entity or its related special purpose
entity that are not eligible to receive special allowance at the rate
established under paragraph (f)(2) of this section, or if they do not
exceed an amount as determined by such other method requested by the
State or non-profit entity that the Secretary considers reliable.
(C) Loans owned by the State or non-profit entity or a related
special purpose entity for which the trustee receives fees in excess of
the amount permitted by paragraph (f)(3)(viii) of this section cease to
qualify for a special allowance payment at the rate prescribed under
paragraph (f)(2) of this section.
(ix) For purposes of paragraph (f)(3) of this section, if a State or
non-profit entity, its related special purpose entity, or a trustee
acting on behalf of any of these entities, grants a security interest
in, or otherwise pledges as collateral, a loan, or the income from a
loan, to secure a debt obligation for which such State or non-profit
entity, or its related special purpose entity, is the issuer of that
debt obligation, none of these entities shall, by such action--
(A) Be deemed to be owned or controlled, in whole or in part, by a
for-profit entity; or
(B) Lose its status as the sole owner of a beneficial interest in a
loan and the income from a loan.
(x) Not-for-Profit Holder Eligibility Determination. A State or non-
profit entity that seeks to qualify as an eligible not-for-profit
holder, either in its own right or through a trust agreement with an
eligible lender trustee, must provide to the Secretary--
(A) A certification on the State or non-profit entity's letterhead
signed by the State or non-profit entity's Chief Executive Officer (CEO)
which--
(1) States the basis upon which the entity qualifies as a State or
non-profit entity;
(2) Includes documentation establishing its status as a State or
non-profit entity;
(3) Includes the name and lender identification number(s) of the
entities for which designation is being certified;
[[Page 84]]
(4) Includes the name of any related special purpose entities that
hold any interest in any loan on which special allowance is claimed
under paragraph (f)(2)of this section, describes the role of such entity
with respect to the loans, and provides with respect to that entity the
certifications and documentation described in paragraph (f)(3)(x)(A) and
(B) of this section; and
(5) For an entity establishing status under section 150(d) of the
Internal Revenue Code of 1986, includes copies of the requests of the
State or political subdivision or subdivisions thereof or requirements
described in section 150(d)(2) of the Internal Revenue Code and the
CEO's additional certification that the entity has not elected under
section 150(d)(3) of the Internal Revenue Code to cease its status as a
qualified scholarship funding corporation.
(B) A separately submitted certification or opinion by the State or
non-profit entity's external legal counsel or the office of the attorney
general of the State, with supporting documentation that shows that the
State or non-profit entity--
(1) Is constituted a State entity by operation of specific State
law;
(2) Has been designated by the State or one or more political
subdivisions of the State to serve as a qualified scholarship funding
corporation under section 150(d) of the Internal Revenue Code, has not
made the election described under section 150(d)(3) of the Internal
Revenue Code, and is incorporated under State law as a not-for-profit
organization;
(3) Is incorporated under State law as a not-for-profit organization
or is an entity described in section 501(c)(3) of the Internal Revenue
Code; or
(4) Has in effect a relationship with an eligible lender under which
the lender is acting as trustee on behalf of the State or non-profit
entity.
(xi) Annual Certification by Eligible Not-for-Profit Holder. A State
or non-profit entity that seeks to retain its eligibility as an eligible
not-for-profit holder, either in its own right or through a trust
agreement with an eligible lender trustee, must annually provide to the
Secretary--
(A) A certification on the State or non-profit entity's letterhead
signed by the State or non-profit entity's Chief Executive Officer (CEO)
which--
(1) Includes the name and lender identification number(s) of the
entities for which designation is being recertified;
(2) States that the State or non-profit entity has not altered its
status as a State or non-profit entity since its prior certification to
the Secretary, or, if it has altered its status, describes any such
alterations; and
(3) States that the State or non-profit entity continues to satisfy
the requirements of an eligible not-for-profit holder, either in its own
right or through a trust agreement with an eligible lender trustee; and
(B) A copy of its IRS Form 990, if applicable, and that of any
related special purpose entity that holds an interest in loans on which
it seeks to claim special allowance at the rate provided under paragraph
(f)(2) of this section, at the same time these returns are filed with
the Internal Revenue Service.
(xii) Not-for-Profit Holder Change of Status. Within 10 business
days of becoming aware of the occurrence of a change that may result in
a State or non-profit entity that has been designated an eligible not-
for-profit holder, either directly or through an eligible lender
trustee, losing that eligibility, the State or non-profit entity must--
(A) Submit details of the change to the Secretary; and
(B) Cease billing for special allowance at the rate established
under paragraph (f)(2) of this section for the period from the date of
the change that may result in it no longer being eligible for the rate
established under paragraph (f)(2) of this section to the date of the
Secretary's determination that such entity has not lost its eligibility
as a result of such change; provided, however, that in the quarter
following the Secretary's determination that such eligible not-for-
profit holder has not lost its eligibility, the eligible not-for-profit
holder may submit a billing for special allowance during the period from
the date of the change to the date of the Secretary's determination
equal
[[Page 85]]
to the difference between special allowance at the rate established
under paragraph (f)(2) of this section and the amount it actually billed
at the rate established under paragraph (f)(1) of this section.
(xiii) In the case of a loan for which the special allowance payment
is calculated under paragraph (f)(2) of this section and that is sold by
the eligible not-for-profit holder holding the loan to an entity that is
not an eligible not-for-profit holder, the special allowance payment for
such loan shall, beginning on the date of the sale, no longer be
calculated under paragraph (f)(2) and shall be calculated under
paragraph (f)(1) of this section instead.
(4) In the case of a loan for which the special allowance payment is
calculated under paragraph (f)(2) of this section and that is sold by
the eligible not-for-profit holder holding the loan to an entity that is
not an eligible not-for-profit holder, the special allowance payment for
such loan shall, beginning on the date of the sale, no longer be
calculated under paragraph (f)(2) and shall be calculated under
paragraph (f)(1) of this section instead.
(g) For purposes of this section--
(1) A tax-exempt obligation is an obligation the income of which is
exempt from taxation under the Internal Revenue Code of 1986 (26
U.S.C.);
(2) The date on which an obligation is considered to be ``originally
issued'' is determined under Sec. 682.302(f)(2)(i) or (ii), as
applicable.
(i) An obligation issued to obtain funds to make loans, or to
purchase a legal or equitable interest in loans, including by pledge as
collateral for that obligation, is considered to be originally issued on
the date issued.
(ii) A tax-exempt obligation that refunds, or is one of a series of
tax-exempt refundings with respect to a tax-exempt obligation described
in Sec. 682.302(f)(2)(i), is considered to be originally issued on the
date on which the obligation described in Sec. 682.302(f)(2)(i) was
issued.
(3) A loan is refinanced when an Authority that has pledged the loan
as collateral for an obligation of that Authority retains an interest in
the loan, but causes the loan to be released from the lien of that
obligation and pledged as collateral for a different obligation of that
Authority.
(4) References to an Authority include a successor entity that may
not qualify as an Authority under Sec. 682.200(b).
(h) Calculation of special allowance payments for loans subject to
the Servicemembers Civil Relief Act (50 U.S.C. 527, App. sec. 207). For
FFEL Program loans first disbursed on or after July 1, 2008 that are
subject to the interest rate limit under the Servicemembers Civil Relief
Act, special allowance is calculated in accordance with paragraphs (c)
and (f) of this section, except the applicable interest rate for this
purpose shall be 6 percent.
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25746, May 17, 1994; 59
FR 33353, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 64 FR 18978, Apr.
16, 1999; 64 FR 58626, Oct. 29, 1999; 66 FR 34763, June 29, 2001; 68 FR
75429, Dec. 31, 2003; 71 FR 45703, Aug. 9, 2006; 71 FR 64398, Nov. 1,
2006; 72 FR 62002, Nov. 1, 2007; 73 FR 63252, Oct. 23, 2008; 74 FR
55996, Oct. 29, 2009; 78 FR 65813, Nov. 1, 2013]
Sec. 682.303 [Reserved]
Sec. 682.304 Methods for computing interest benefits and special allowance.
(a) General. The Secretary pays a lender interest benefits and
special allowance on eligible loans on a quarterly basis. These calendar
quarters end on March 31, June 30, September 30, and December 31 of each
year. A lender may use either the average daily balance method or the
actual accrual method to determine the amount of interest benefits
payable on a lender's loans. A lender shall use the average daily
balance method to determine the balance on which the Secretary computes
the amount of special allowance payable on its loans.
(b) Average daily balance method for interest benefits. (1) Under
this method, the lender adds the unpaid principal balance outstanding on
all loans qualifying for interest benefits at each actual interest rate
for each day of the quarter, divides the sum by the number of days in
the quarter, and rounds the result to the nearest whole dollar. The
resulting figure is the average daily balance for qualified loans
outstanding at each actual interest rate.
[[Page 86]]
(2) The Secretary computes the interest benefits due on all
qualified loans at each actual interest rate by multiplying the average
daily balance thereof by the actual interest rate, multiplying this
result by the number of days in the quarter, and then dividing this
result by the actual number of days in the year.
(c) Actual accrual method for interest benefits. (1) Under this
method, the lender computes the total unpaid principal balance
outstanding on all qualified loans at each actual interest rate on each
day of the quarter, multiplies this result by the actual interest rate,
and divides this result by the actual number of days in the year, or,
alternatively, 365.25 days. A lender who chooses to divide by 365.25
days must do so for four consecutive years.
(2) The interest benefits due for a quarter equal the sum of the
daily interest benefits due, computed under paragraph (c)(1) of this
section, for each day of the quarter.
(d) Average daily balance method for special allowance. (1) To
compute the average daily balance outstanding for purposes of special
allowance, the lender adds the unpaid principal balance outstanding on
all qualified loans at each applicable interest rate for each day of the
quarter, divides this sum by the number of days in the quarter, and
rounds the result to the nearest whole dollar. The resulting figure is
the average daily balance for the quarter for qualifying loans at each
applicable interest rate.
(2) To compute the average daily balance of unpaid accrued interest
for purposes of special allowance on loans covered by
Sec. 682.215(b)(7), the lender adds the unpaid accrued interest on such
loans for each eligible day of the quarter, divides this sum by the
number of days in the quarter, and rounds the result to the nearest
whole dollar. The resulting figure is the average daily balance for the
quarter for qualifying loans at the applicable interest rate.
(3) The Secretary computes the special allowance payable to a lender
based upon the average daily balance computed by the lender under
paragraphs (d)(1) and (2) of this section.
(Authority: 20 U.S.C. 1082, 1087-1)
[57 FR 60323, Dec. 18, 1992, as amended at 73 FR 63254, Oct. 23, 2008]
Sec. 682.305 Procedures for payment of interest benefits and special
allowance and collection of origination and loan fees.
(a) General. (1) If a lender owes origination fees or loan fees
under paragraph (a) of this section, it must submit quarterly reports to
the Secretary on a form provided or prescribed by the Secretary, even if
the lender is not owed, or does not wish to receive, interest benefits
or special allowance from the Secretary.
(2) The lender shall report, on the quarterly report required by
paragraph (a)(1) of this section, the amount of origination fees it was
authorized to collect and the amount of those fees refunded to borrowers
during the quarter covered by the report.
(3)(i)(A) The Secretary reduces the amount of interest benefits and
special allowance payable to the lender by--
(1) The amount of origination fees the lender was authorized to
collect during the quarter under Sec. 682.202(c), whether or not the
lender actually collected that amount; and
(2) The amount of lender fees payable under paragraph (a)(3)(ii) of
this section; and
(3) The amount of excess interest, as calculated in accordance with
paragraph (d) of this section.
(B) The Secretary increases the amount of interest benefits and
special allowance payable to the lender by the amount of origination
fees refunded to borrowers during the quarter under Sec. 682.202(c).
(ii)(A) For any FFEL loan made on or after October 1, 1993, a lender
shall pay the Secretary a loan fee equal to 0.50% of the principal
amount of the loan.
(B) For any FFEL loan made on or after October 1, 2007 and prior to
July 1, 2010, a lender shall pay the Secretary a loan fee equal to 1.0
percent of the principal amount of the loan.
(iii) The Secretary collects from an originating lender the amount
of origination fees the originating lender was authorized to collect
from borrowers
[[Page 87]]
during the quarter whether or not the originating lender actually
collected those fees. The Secretary also collects the fees the
originating lender is required to pay under paragraph (a)(3)(ii) of this
section. Generally, the Secretary collects the fees from the originating
lender by offsetting the amount of interest benefits and special
allowance payable to the originating lender in a quarter, and, if
necessary, the amount of interest benefits and special allowance payable
in subsequent quarters may be offset until the total amount of fees has
been recovered.
(iv) If the full amount of the fees cannot be collected within two
quarters by reducing interest and special allowance payable to the
originating lender, the Secretary may collect the unpaid amount directly
from the originating lender.
(v) If the full amount of the fees cannot be collected within two
quarters from the originating lender in accordance with paragraphs
(a)(3)(iii) and (iv) of this section and if the originating lender has
transferred the loan to a subsequent holder, the Secretary may,
following written notice, collect the unpaid amount from the holder by
using the same steps described in paragraphs (a)(3)(iii) and (iv) of
this section, with the term ``holder'' substituting for the term
``originating lender''.
(4) If an originating lender sells or otherwise transfers a loan to
a new holder, the originating lender remains liable to the Secretary for
payment of the origination fees. The Secretary will not pay interest
benefits or special allowance to the new holder or pay reinsurance to
the guaranty agency until the origination fees are paid to the
Secretary.
(b) Penalty interest. (1)(i) If the Secretary does not pay interest
benefits or the special allowance within 30 days after the Secretary
receives an accurate, timely, and complete request for payment from a
lender, the Secretary pays the lender penalty interest.
(ii) The payment of interest benefits or special allowance is deemed
to occur, for purposes of this paragraph, when the Secretary--
(A) Authorizes the Treasury Department to pay the lender;
(B) Credits the payment due the lender against a debt that the
Secretary determines is owed the Secretary by the lender; or
(C) Authorizes the Treasury Department to pay the amount due by the
lender to another Federal agency for credit against a debt that the
Federal agency has determined the lender owes.
(2) Penalty interest is an amount that accrues daily on interest
benefits and special allowance due to the lender. The penalty interest
is computed by--
(i) Multiplying the daily interest rate applicable to loans on which
payment for interest benefits was requested, by the amount of interest
benefits due on those loans for each interest rate;
(ii) Multiplying the daily special allowance rate applicable to
loans on which special allowance was requested by the amount of special
allowance due on those loans for each interest rate and special
allowance category;
(iii) Adding the results of paragraphs (b)(2)(i) and (ii) of this
section to determine the gross penalty interest to be paid for each day
that penalty interest is due;
(iv) Dividing the results of paragraph (b)(2)(iii) of this section
by the gross amount of interest benefits and special allowance due to
obtain the average penalty interest rate;
(v) Multiplying the rate obtained in paragraph (b)(2)(iv) of this
section by the total amount of reduction to gross interest benefits and
special allowance due (e.g., origination fees or other debts owed to the
Federal Government);
(vi) Subtracting the amount calculated in paragraph (b)(2)(v) of
this section from the amount calculated under paragraph (b)(2)(iii) of
this section to obtain the net amount of penalty interest due per day;
and
(vii) Multiplying the amount calculated in paragraph (b)(2)(vi) of
this section by the number of days calculated under paragraph (b)(3) of
this section.
(3) The Secretary pays penalty interest for the period--
(i) Beginning on the later of--
(A) The 31st day after the final day of the quarter covered by the
request for payment; or
[[Page 88]]
(B) The 31st day after the Secretary's receipt of an accurate,
timely, and complete request for payment from the lender; and
(ii) Ending on the day the Secretary pays the interest benefits and
the special allowance at issue, in accordance with paragraph (b)(1)(ii)
of this section.
(4) A request for interest benefits and special allowance is
considered timely only if it is received by the Secretary within 90 days
following the end of the quarter to which the request pertains.
(5) A request for interest benefits and special allowance is not
considered accurate and complete if it--
(i) Requests payments to which the lender is not entitled under
Secs. 682.300 through 682.302;
(ii) Includes loans that the Secretary, in writing, has directed
that the lender exclude from the request;
(iii) Does not contain all information required by the Secretary or
contains conflicting information; or
(iv) Is not provided and certified on the form and in the manner
prescribed by the Secretary.
(c) Independent audits. (1)(i) A lender holding more than $5 million
in FFEL loans during its fiscal year must submit an independent annual
compliance audit for that year, conducted by a qualified independent
organization or person.
(ii) The Secretary may, following written notice, suspend the
payment of interest benefits and special allowance to a lender that does
not submit its audit within the time period prescribed in paragraph
(c)(2) of this section.
(2) The audit required under paragraph (c)(1) of this section must--
(i) Examine the lender's compliance with the Act and applicable
regulations;
(ii) Examine the lender's financial management of its FFEL program
activities;
(iii) Be conducted in accordance with the standards for audits
issued by the United States General Accounting Office's (GAO's)
Government Auditing Standards. Procedures for audits are contained in an
audit guide developed by and available from the Office of the Inspector
General of the Department;
(iv) Be conducted at least annually and be submitted to the
Secretary within six months of the end of the audit period. The initial
audit must be of the lender's first fiscal year that begins after July
23, 1992, and must be submitted within six months of the end of the
audit period. Each subsequent audit must cover the lender's activities
for the period beginning no later than the end of the period covered by
the preceding audit; and
(v) A lender must conduct the audit required by this paragraph in
accordance with 31 U.S.C. 7502 and 2 CFR part 200, subpart F--Audit
Requirements.\1\
---------------------------------------------------------------------------
\1\ None of the other regulations in 2 CFR part 200 apply to
lenders. Only those requirements in subpart F-Audit Requirements, apply
to lenders, as required under the Single Audit Act Amendments of 1996
(31 U.S.C. Chapter 75).
---------------------------------------------------------------------------
(3) The Secretary may determine that a lender has met the
requirements of paragraph (c) of this section if the lender has been
audited in accordance with 31 U.S.C. 7502 for other purposes, the lender
submits the results of the audit to the Office of Inspector General, and
the Secretary determines that the audit meets the requirements of this
paragraph.
(d) Recovery of excess interest paid by the Secretary. (1) For any
loan for which the first disbursement of principal is made on or after
April 1, 2006, the Secretary collects the amount of excess interest paid
to a lender on a quarterly basis when the applicable interest rate on a
loan for each quarter exceeds the special allowance support level in
paragraph (d)(2) of this section for the loan. Excess interest is
calculated and recovered each quarter by subtracting the special
allowance support level from the applicable interest rate, multiplying
the result by the average daily principal balance of the loan (not
including unearned interest added to principal) during the quarter, and
dividing by four.
(2) The term special allowance support level means a number
expressed as a percentage equal to the sum of--
(i) The average of the bond equivalent rates of the quotes of the 3-
month commercial paper (financial) rates in effect for each of the days
in such quarter as reported by the Federal Reserve in Publication H-15
(or its successor) for such 3-month period; plus
[[Page 89]]
(ii) 2.34 percent for a Federal Stafford loan in repayment;
(iii) 1.74 percent for a Federal Stafford loan during the in-school,
grace, and deferment periods; or
(iv) 2.64 percent for a Federal PLUS or Consolidation Loan.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59
FR 61428, Nov. 30, 1994; 60 FR 31411, June 15, 1995; 64 FR 18978, Apr.
16, 1999; 64 FR 58627, Oct. 29, 1999; 71 FR 45705, Aug. 9, 2006; 71 FR
64398, Nov. 1, 2006; 72 FR 62003, Nov. 1, 2007; 74 FR 55996, Oct. 29,
2009; 78 FR 65814, Nov. 1, 2013; 79 FR 76105, Dec. 19, 2014]
Subpart D_Administration of the Federal Family Education Loan Programs
by a Guaranty Agency
Sec. 682.400 Agreements between a guaranty agency and the Secretary.
(a) The Secretary enters into agreements with a guaranty agency
whose loan guarantee program meets the requirements of this subpart. The
agreements enable the guaranty agency to participate in the FFEL
programs and to receive the various payments and benefits related to
that participation.
(b) There are four agreements:
(1) Basic program agreement. In order to participate in the FFEL
programs, a guaranty agency must have a basic program agreement. Under
this agreement--
(i) Borrowers whose Stafford or Consolidation loans are guaranteed
by the agency may qualify for interest benefits that are paid to the
lender on the borrower's behalf under Sec. 682.301; and
(ii) Lenders under the guaranty agency program may receive special
allowance payments from the Secretary and have death, disability,
bankruptcy, closed school and false certification discharge claims paid
by the Secretary through the guaranty agency.
(2) Federal advances for claim payments agreement. A guaranty agency
must have an agreement for Federal advances for claim payments to
receive and use Federal advances to pay default claims.
(3) Reinsurance agreement. A guaranty agency must have a reinsurance
agreement to receive reimbursement from the Secretary for its losses on
default claims.
(4) Loan Rehabilitation Agreement. A guaranty agency must have an
agreement for rehabilitating a loan for which the Secretary has made a
reinsurance payment under section 428(c)(1) of the Act.
(c) The Secretary's execution of an agreement does not indicate
acceptance of any current or past standards or procedures used by the
agency.
(d) All of the agreements are subject to subsequent changes in the
Act, in other applicable Federal statutes, and in regulations that apply
to the FFEL programs.
(Authority: 20 U.S.C. 1072, 1078-1, 1078-2, 1078-3, 1082, 1087, 1087-1)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 33353, June 28, 1994;
64 FR 18978, Apr. 16, 1999; 64 FR 58627, Oct. 29, 1999; 78 FR 65814,
Nov. 1, 2013]
Sec. 682.401 Basic program agreement.
(a) General. In order to participate in the FFEL programs, a
guaranty agency shall enter into a basic agreement with the Secretary.
(b) Terms of agreement. In the basic agreement, the guaranty agency
shall agree to ensure that its loan guarantee program meets the
following requirements at all times:
(1) Reinstatement of borrower eligibility. Except as provided in
Sec. 668.35(b) for a borrower with a defaulted loan on which a judgment
has been obtained and Sec. 668.35(i) for a borrower who fraudulently
obtained title IV, HEA program assistance, reinstatement of Title IV
eligibility for a borrower with a defaulted loan must be in accordance
with this paragraph (b)(1). For a borrower's loans held by a guaranty
agency on which a reinsurance claim has been paid by the Secretary, the
guaranty agency must afford a defaulted borrower, upon the borrower's
request, renewed eligibility for Title IV assistance once the borrower
has made satisfactory repayment arrangements as that term is defined in
Sec. 682.200.
(i) For purposes of this section, the determination of reasonable
and affordable must--
[[Page 90]]
(A) Include consideration of the borrower's and spouse's disposable
income and necessary expenses including, but not limited to, housing,
utilities, food, medical costs, dependent care costs, work-related
expenses and other Title IV repayment;
(B) Not be a required minimum payment amount, e.g. $50, if the
agency determines that a smaller amount is reasonable and affordable
based on the borrower's total financial circumstances. The agency must
include documentation in the borrower's file of the basis for the
determination, if the monthly reasonable and affordable payment
established under this section is less than $50.00 or the monthly
accrued interest on the loan, whichever is greater.
(C) Be based on the documentation provided by the borrower or other
sources including, but not limited to--
(1) Evidence of current income (e.g. proof of welfare benefits,
Social Security benefits, Supplemental Security Income, Workers'
Compensation, child support, veterans' benefits, two most recent pay
stubs, most recent copy of U.S. income tax return, State Department of
Labor reports);
(2) Evidence of current expenses (e.g. a copy of the borrower's
monthly household budget, on a form provided by the guaranty agency);
and
(3) A statement of the unpaid balance on all FFEL loans held by
other holders.
(ii) A borrower may request that the monthly payment amount be
adjusted due to a change in the borrower's total financial circumstances
upon providing the documentation specified in paragraph (b)(4)(i)(C) of
this section.
(iii) A guaranty agency must provide the borrower with a written
statement of the reasonable and affordable payment amount required for
the reinstatement of the borrower's eligibility for Title IV student
assistance, and provide the borrower with an opportunity to object to
those terms.
(iv) A guaranty agency must provide the borrower with written
information regarding the possibility of loan rehabilitation if the
borrower makes three additional reasonable and affordable monthly
payments after making payments to regain eligibility for Title IV
assistance and the consequences of loan rehabilitation.
(v) A guaranty agency must inform the borrower that he or she may
only obtain reinstatement of borrower eligibility under this section
once.
(2) Lender eligibility. (i) An eligible lender may participate in
the program of the agency under reasonable criteria established by the
guaranty agency except to the extent that--
(A) The lender's eligibility has been limited, suspended, or
terminated by the Secretary under subpart G of this part or by the
agency under standards and procedures that are substantially the same as
those in subpart G of this part; or
(B) The lender is disqualified by the Secretary under sections
432(h)(1), 432(h)(2), 435(d)(3), or 435(d)(5) of the Act or
Sec. 682.712; or
(C) There is a State constitutional prohibition affecting the
lender's eligibility.
(ii) The agency may not guarantee a loan made by a school lender
that is not located in the geographical area that the agency serves.
(iii) The guaranty agency may refuse to guarantee loans made by a
school on behalf of students not attending that school.
(iv) The guaranty agency may, in determining whether to enter into a
guarantee agreement with a lender, consider whether the lender has had
prior experience in a similar Federal, State, or private nonprofit
student loan program and the amount and percentage of loans that are
currently delinquent or in default under that program.
(3) Insurance premiums and Federal default fees. (i) Except for a
Consolidation Loan or refinanced SLS or PLUS loans, a guaranty agency:
(A) May charge the lender an insurance premium for Stafford, SLS, or
PLUS loans it guarantees prior to July 1, 2006; and
(B) Must collect, either from the lender or by payment from any
other non-Federal source, a Federal default fee for any Stafford or PLUS
loans it guarantees on or after July 1, 2006, to be deposited into the
Federal Fund under Sec. 682.419.
[[Page 91]]
(ii) The guaranty agency may not use the Federal default fee for
incentive payments to lenders, and may only use the insurance premium or
the Federal default fee for costs incurred in guaranteeing loans or in
the administration of the agency's loan guarantee program, as specified
in Sec. 682.410(a)(2) or Sec. 682.419(c).
(iii) If a lender charges the borrower an insurance premium or
Federal default fee, the lender must deduct the charge proportionately
from each disbursement of the borrower's loan proceeds.
(iv) The amount of the insurance premium or Federal default fee, as
applicable--
(A) May not exceed 3 percent of the principal balance for a loan
disbursed on or before June 30, 1994;
(B) May not exceed 1 percent of the principal balance for a loan
disbursed on or after July 1, 1994;
(C) Shall be 1 percent of the principal balance of a loan guaranteed
on or after July 1, 2006 and prior to July 1, 2010.
(v) If the circumstances specified in paragraph (vi) exist, the
guaranty agency shall refund to the lender any insurance premium or
Federal default fee paid by the lender.
(vi) The lender shall refund to the borrower by a credit against the
borrower's loan balance the insurance premium or Federal default fee
paid by the borrower on a loan under the following circumstances:
(A) The insurance premium or Federal default fee attributable to
each disbursement of a loan must be refunded if the loan check is
returned uncashed to the lender.
(B) The insurance premium or Federal default fee, or an appropriate
prorated amount of the premium or fee, must be refunded by application
to the borrower's loan balance if--
(1) The loan or a portion of the loan is returned by the school to
the lender in order to comply with the Act or with applicable
regulations;
(2) Within 120 days of disbursement, the loan or a portion of the
loan is repaid or returned, unless--
(i) The borrower has no FFEL Program loans in repayment status and
has requested, in writing, that the repaid or returned funds be used for
a different purpose; or
(ii) The borrower has a FFEL Program loan in repayment status, in
which case the payment is applied in accordance with Sec. 682.209(b)
unless the borrower has requested, in writing, that the repaid or
returned funds be applied as a cancellation of all or part of the loan;
(3) Within 120 days of disbursement, the loan check has not been
negotiated; or
(4) Within 120 days of disbursement, the loan proceeds disbursed by
electronic funds transfer or master check have not been released from
the restricted account maintained by the school.
(4) Inquiries. The agency must be able to receive and respond to
written, electronic, and telephone inquiries.
(5) Guaranty liability. The guaranty agency shall guarantee--
(i) 100 percent of the unpaid principal balance of each loan
guaranteed for loans disbursed before October 1, 1993;
(ii) Not more than 98 percent of the unpaid principal balance of
each loan guaranteed for loans first disbursed on or after October 1,
1993 and before July 1, 2006; and
(iii) Not more than 97 percent of the unpaid principal balance of
each loan guaranteed for loans first disbursed on or after July 1, 2006.
(6) Guaranty agency verification of default data. A guaranty agency
must meet the requirements and deadlines provided for it in subpart M
and N of 34 CFR part 668 for the cohort default rate process.
(7) Guaranty agency administration. In the case of a State loan
guarantee program administered by a State government, the program must
be administered by a single State agency, or by one or more private
nonprofit institutions or organizations under the supervision of a
single State agency. For this purpose, ``supervision'' includes, but is
not limited to, setting policies and procedures, and having full
responsibility for the operation of the program.
(8) Loan assignment. (i) Except as provided in paragraph (b)(8)(iii)
of this section, the guaranty agency must allow a
[[Page 92]]
loan to be assigned only if the loan is fully disbursed and is assigned
to--
(A) An eligible lender;
(B) A guaranty agency, in the case of a borrower's default, death,
total and permanent disability, or filing of a bankruptcy petition, or
for other circumstances approved by the Secretary, such as a loan made
for attendance at a school that closed or a false certification claim;
(C) An educational institution, whether or not it is an eligible
lender, in connection with the institution's repayment to the agency or
to the Secretary of a guarantee or a reinsurance claim payment made on a
loan that was ineligible for the payment;
(D) A Federal or State agency or an organization or corporation
acting on behalf of such an agency and acting as a conservator,
liquidator, or receiver of an eligible lender; or
(E) The Secretary.
(ii) For the purpose of this paragraph, ``assigned'' means any kind
of transfer of an interest in the loan, including a pledge of such an
interest as security.
(iii) The guaranty agency must allow a loan to be assigned under
paragraph (b)(8)(i) of this section, following the first disbursement of
the loan if the assignment does not result in a change in the identity
of the party to whom payments must be made.
(9) Transfer of guarantees. Except in the case of a transfer of
guarantee requested by a borrower seeking a transfer to secure a single
guarantor, the guaranty agency may transfer its guarantee obligation on
a loan to another guaranty agency, only with the approval of the
Secretary, the transferee agency, and the holder of the loan.
(10) Standards and procedures. (i) The guaranty agency shall
establish, disseminate to concerned parties, and enforce standards and
procedures for--
(A) Ensuring that all lenders in its program meet the definition of
``eligible lender'' in section 435(d) of the Act and have a written
lender agreement with the agency;
(B) Lender participation in its program;
(C) Limitation, suspension, termination of lender participation;
(D) Emergency action against a participating lender;
(E) The exercise of due diligence by lenders in making, servicing,
and collecting loans; and
(F) The timely filing by lenders of default, death, disability,
bankruptcy, closed school, false certification unpaid refunds, identity
theft, and ineligible loan claims.
(ii) The guaranty agency shall ensure that its program and all
participants in its program at all times meet the requirements of
subparts B, C, D, and F of this part.
(11) Monitoring student enrollment. The guaranty agency shall
monitor the enrollment status of a FFEL program borrower or student on
whose behalf a parent has borrowed that includes, at a minimum,
reporting to the current holder of the loan within 35 days of any change
in the student's enrollment status reported that triggers--
(i) The beginning of the borrower's grace period; or
(ii) The beginning or resumption of the borrower's immediate
obligation to make scheduled payments.
(12) Submission of interest and special allowance information. Upon
the Secretary's request, the guaranty agency shall submit, or require
its lenders to submit, information that the Secretary deems necessary
for determining the amount of interest benefits and special allowance
payable on the agency's guaranteed loans.
(13) Submission of information for reports. The guaranty agency
shall require lenders to submit to the agency the information necessary
for the agency to complete the reports required by Sec. 682.414(b).
(14) Guaranty agency transfer of information. (i) A guaranty agency
from which another guaranty agency requests information regarding
Stafford and SLS loans made after January 1, 1987, to students who are
residents of the State for which the requesting agency is the principal
guaranty agency shall provide--
(A) The name and social security number of the student; and
(B) The annual loan amount and the cumulative amount borrowed by the
student in loans under the Stafford and
[[Page 93]]
SLS programs guaranteed by the responding agency.
(ii) The reasonable costs incurred by an agency in fulfilling a
request for information made under paragraph (b)(14)(i) of this section
must be paid by the guaranty agency making the request.
(15) Information on defaults. The guaranty agency shall, upon the
request of a school, furnish information with respect to students,
including the names and addresses of such students, who were enrolled at
that school and who are in default on the repayment of any loan
guaranteed by that agency.
(16) Information on loan sales or transfers. The guaranty agency
must, upon the request of a school, furnish to the school last attended
by the student, information with respect to the sale or transfer of a
borrower's loan prior to the beginning of the repayment period,
including--
(i) Notice of assignment;
(ii) The identity of the assignee;
(iii) The name and address of the party by which contact may be made
with the holder concerning repayment of the loan; and
(iv) The telephone number of the assignee or, if the assignee uses a
lender servicer, another appropriate number for borrower inquiries.
(17) Third-party servicers. The guaranty agency may not enter into a
contract with a third-party servicer that the Secretary has determined
does not meet the financial and compliance standards under Sec. 682.416.
The guaranty agency shall provide the Secretary with the name and
address of any third-party servicer with which the agency enters into a
contract and, upon request by the Secretary, a copy of that contract.
(18) Consolidation of defaulted FFEL loans. (i) A guaranty agency
may charge collection costs in an amount not to exceed 18.5 percent of
the outstanding principal and interest on a defaulted FFEL Program loan
that is paid off by a Direct Consolidation loan.
(ii) On or after October 1, 2006, when returning proceeds to the
Secretary from the consolidation of a defaulted loan, a guaranty agency
that charged the borrower collection costs must remit an amount that
equals the lesser of the actual collection costs charged or 8.5 percent
of the outstanding principal and interest of the loan.
(iii) On or after October 1, 2009, when returning proceeds to the
Secretary from the consolidation of a defaulted loan that is paid off
with excess consolidation proceeds as defined in paragraph (b)(18)(iv)
of this section, a guaranty agency must remit the entire amount of
collection costs repaid through the consolidation loan.
(iv) The term excess consolidation proceeds means, for any Federal
fiscal year beginning on or after October 1, 2009, the amount of
Consolidation Loan proceeds received for defaulted loans under the FFEL
Program that exceed 45 percent of the agency's total collections on
defaulted loans in that Federal fiscal year.
(19) Change in agency's records system. The agency shall provide
written notification to the Secretary at least 30 days prior to placing
its new guarantees or converting the records relating to its existing
guaranty portfolio to an information or computer system that is owned
by, or otherwise under the control of, an entity that is different than
the party that owns or controls the agency's existing information or
computer system. If the agency is soliciting bids from third parties
with respect to a proposed conversion, the agency shall provide written
notice to the Secretary as soon as the solicitation begins. The
notification described in this paragraph must include a concise
description of the agency's conversion project and the actual or
estimated cost of the project.
(20) Plans to Reduce Consolidation of defaulted loans. A guaranty
agency shall establish and submit to the Secretary for approval,
procedures to ensure that consolidation loans are not an excessive
proportion of the guaranty agency's recoveries on defaulted loans.
(c) Review of forms and procedures. (1) The guaranty agency shall
submit to the Secretary its write-off criteria and procedures. The
agency may not use these materials until the Secretary approves them.
(2) The guaranty agency shall promptly submit to the Secretary its
regulations, statements of procedures
[[Page 94]]
and standards, agreements, and other materials that substantially affect
the operation of the agency's program, and any proposed changes to those
materials. Except as provided in paragraph (c)(1) of this section, the
agency may use these materials unless and until the Secretary
disapproves them.
(3) The guaranty agency must use common application forms,
promissory notes, Master Promissory Notes (MPN), and other common forms
approved by the Secretary. Each loan made under an MPN is enforceable in
accordance with the terms of the MPN and is eligible for claim payment
based on a true and exact copy of such MPN.
(4) The guaranty agency must develop and implement appropriate
procedures that provide for the granting of a student deferment as
specified in Sec. 682.210(a)(6)(iv) and (c)(3) and require their lenders
to use these procedures.
(5) The guaranty agency shall ensure that all program materials meet
the requirements of Federal and State law, including, but not limited
to, the Act and the regulations in this part and part 668.
(d) College Access Initiative. (1) A guaranty agency shall establish
a plan to promote access to postsecondary education by--
(i) Providing the Secretary and the public with information on
Internet web links and a comprehensive listing of postsecondary
education opportunities, programs, publications and other services
available in the State, or States for which the guaranty agency serves
as the designated guaranty agency;
(ii) Promoting and publicizing information for students and
traditionally underrepresented populations on college planning, career
preparation, and paying for college in coordination with other entities
that provide or distribute such information in the State, or States for
which the guaranty agency serves as the designated guaranty agency;
(2) The activities required by this section may be funded from the
guaranty agency's Operating Fund in accordance with
Sec. 682.423(c)(1)(vii) or from funds remaining in restricted accounts
established pursuant to section 422(h)(4) of the Act.
(3) The guaranty agency shall ensure that the information required
by this subsection is available to the public by November 5, 2006 and
is--
(i) Free of charge; and
(ii) Available in print.
(e)(1) A guaranty agency must work with schools that participated in
its program to develop and make available high-quality educational
materials and programs that provide training to students and their
families in budgeting and financial management, including debt
management and other aspects of financial literacy, such as the cost of
using high-interest loans to pay for postsecondary education, and how
budgeting and financial management relate to the title IV student loan
programs.
(2) The materials and programs described in paragraph (e)(1) of this
section must be in formats that are simple and understandable to
students and their families, and must be made available to students and
their families by the guaranty agency before, during, and after a
student's enrollment at an institution of higher education.
(3) A guaranty agency may provide similar programs and materials to
an institution that participates only in the William D. Ford Federal
Direct Loan Program.
(4) A lender or loan servicer may also provide an institution with
outreach and financial literacy information consistent with the
requirements of paragraphs (e)(1) and (2) of this section.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)
[57 FR 60323, Dec. 18, 1992]
Editorial Note: For Federal Register citations affecting
Sec. 682.401, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
Sec. 682.402 Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.
(a) General. (1) Rules governing the payment of claims based on
filing for relief in bankruptcy, and discharge of loans due to death,
total and permanent disability, attendance at a school that closes,
false certification by a
[[Page 95]]
school of a borrower's eligibility for a loan, and unpaid refunds by a
school are set forth in this section.
(2) If a Consolidation loan was obtained jointly by a married
couple, the amount of the Consolidation loan that is discharged if one
of the borrowers dies or becomes totally and permanently disabled is
equal to the portion of the outstanding balance of the Consolidation
loan, as of the date the borrower died or became totally and permanently
disabled, attributable to any of that borrower's loans that would have
been eligible for discharge.
(3) If a PLUS loan was obtained by two parents as co-makers, and
only one of the borrowers dies, becomes totally and permanently
disabled, has collection of his or her loan obligation stayed by a
bankruptcy filing, or has that obligation discharged in bankruptcy, the
other borrower remains obligated to repay the loan unless that borrower
would qualify for discharge of the loan under these regulations.
(4) Except for a borrower's loan obligation discharged by the
Secretary under the false certification discharge provision of
paragraphs (e)(1)(ii) or (iii) of this section, a loan qualifies for
payment under this section and as provided in paragraph (h)(1)(iv) of
this section, only to the extent that the loan is legally enforceable
under applicable law by the holder of the loan.
(5) For purposes of this section--
(i) The legal enforceability of a loan is conclusively determined on
the basis of a ruling by a court or administrative tribunal of competent
jurisdiction with respect to that loan, or a ruling with respect to
another loan in a judgment that collaterally estops the holder from
contesting the enforceability of the loan;
(ii) A loan is conclusively determined to be legally unenforceable
to the extent that the guarantor determines, pursuant to an objection
presented in a proceeding conducted in connection with consumer
reporting agency reporting, tax refund offset, wage garnishment, or in
any other administrative proceeding, that the loan is not legally
enforceable; and
(iii) If an objection has been raised by the borrower or another
party about the legal enforceability of the loan and no determination
has been made under paragraph (a)(5) (i) or (ii) of this section, the
Secretary may authorize the payment of a claim under this section under
conditions the Secretary considers appropriate. If the Secretary
determines in that or any other case that a claim was paid under this
section with respect to a loan that was not a legally enforceable
obligation of the borrower, the recipient of that payment must refund
that amount of the payment to the Secretary.
(b) Death. (1) If an individual borrower dies, or the student for
whom a parent received a PLUS loan dies, the obligation of the borrower
and any endorser to make any further payments on the loan is discharged.
(2)(i) A discharge of a loan based on the death of the borrower (or
student in the case of a PLUS loan) must be based on--
(A) An original or certified copy of the death certificate;
(B) An accurate and complete photocopy of the original or certified
copy of the death certificate;
(C) An accurate and complete original or certified copy of the death
certificate that is scanned and submitted electronically or sent by
facsimile transmission; or
(D) Verification of the borrower's or student's death through an
authoritative Federal or State electronic database approved for use by
the Secretary.
(ii) Under exceptional circumstances and on a case-by-case basis,
the chief executive officer of the guaranty agency may approve a
discharge based upon other reliable documentation of the borrower's or
student's death.
(3) After receiving reliable information indicating that the
borrower (or student) has died, the lender must suspend any collection
activity against the borrower and any endorser for up to 60 days and
promptly request the documentation described in paragraph (b)(2) of this
section. If additional time is required to obtain the documentation, the
period of suspension of collection activity may be extended up to an
additional 60 days. If the lender is not able to obtain an original or
certified copy of the death certificate, or an accurate and complete
photocopy of the original or certified copy of the death
[[Page 96]]
certificate or other documentation acceptable to the guaranty agency,
under the provisions of paragraph (b)(2) of this section, during the
period of suspension, the lender must resume collection activity from
the point that it had been discontinued. The lender is deemed to have
exercised forbearance as to repayment of the loan during the period when
collection activity was suspended.
(4) Once the lender has determined under paragraph (b)(2) of this
section that the borrower (or student) has died, the lender may not
attempt to collect on the loan from the borrower's estate or from any
endorser.
(5) The lender shall return to the sender any payments received from
the estate or paid on behalf of the borrower after the date of the
borrower's (or student's) death.
(6) In the case of a Federal Consolidation Loan that includes a
Federal PLUS or Direct PLUS loan borrowed for a dependent who has died,
the obligation of the borrower or any endorser to make any further
payments on the portion of the outstanding balance of the Consolidation
Loan attributable to the Federal PLUS or Direct PLUS loan is discharged
as of the date of the dependent's death.
(c)(1) Total and permanent disability. (i) A borrower's loan is
discharged if the borrower becomes totally and permanently disabled, as
defined in Sec. 682.200(b), and satisfies the eligibility requirements
in this section.
(ii) For a borrower who becomes totally and permanently disabled as
described in paragraph (1) of the definition of that term in
Sec. 682.200(b), the borrower's loan discharge application is processed
in accordance with paragraphs (c)(2) through (c)(8) of this section.
(iii) For a veteran who is totally and permanently disabled as
described in paragraph (2) of the definition of that term in
Sec. 682.200(b), the veteran's loan discharge application is processed
in accordance with paragraph (c)(9) of this section.
(iv) For purposes of this paragraph (c)--
(A) A borrower's representative or a veteran's representative is a
member of the borrower's family, the borrower's attorney, or another
individual authorized to act on behalf of the borrower in connection
with the borrower's total and permanent disability discharge
application. References to a ``borrower'' or a ``veteran'' include, if
applicable, the borrower's representative or the veteran's
representative for purposes of applying for a total and permanent
disability discharge, providing notifications or information to the
Secretary, and receiving notifications from the Secretary;
(B) References to ``the lender'' mean the guaranty agency if the
guaranty agency is the holder of the loan at the time the borrower
applies for a total and permanent disability discharge, except that the
total and permanent disability discharge claim filing requirements
applicable to a lender do not apply to the guaranty agency; and
(C) References to ``the applicable guaranty agency'' mean the
guaranty agency that guarantees the loan.
(2) Discharge application process for a borrower who is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in Sec. 682.200(b). (i) If the borrower notifies the lender
that the borrower claims to be totally and permanently disabled as
described in paragraph (1) of the definition of that term in
Sec. 682.200(b), the lender must direct the borrower to notify the
Secretary of the borrower's intent to submit an application for total
and permanent disability discharge and provide the borrower with the
information needed for the borrower to notify the Secretary.
(ii) If the borrower notifies the Secretary of the borrower's intent
to apply for a total and permanent disability discharge, the Secretary--
(A) Provides the borrower with information needed for the borrower
to apply for a total and permanent disability discharge;
(B) Identifies all title IV loans owed by the borrower and notifies
the lenders of the borrower's intent to apply for a total and permanent
disability discharge;
(C) Directs the lenders to suspend efforts to collect from the
borrower for a period not to exceed 120 days; and
[[Page 97]]
(D) Informs the borrower that the suspension of collection activity
described in paragraph (c)(2)(ii)(C) of this section will end after 120
days and collection will resume on the loans if the borrower does not
submit a total and permanent disability discharge application to the
Secretary within that time;
(iii) If the borrower fails to submit an application for a total and
permanent disability discharge to the Secretary within 120 days,
collection resumes on the borrower's title IV loans, and the lender is
deemed to have exercised forbearance of principal and interest from the
date it suspended collection activity. The lender may capitalize, in
accordance with Sec. 682.202(b), any interest accrued and not paid
during that period, except that if the lender is a guaranty agency it
may not capitalize accrued interest.
(iv) The borrower must submit to the Secretary an application for a
total and permanent disability discharge on a form approved by the
Secretary. The application must contain--
(A) A certification by a physician, who is a doctor of medicine or
osteopathy legally authorized to practice in a State, that the borrower
is totally and permanently disabled as described in paragraph (1) of the
definition of that term in Sec. 682.200(b); or
(B) An SSA notice of award for Social Security Disability Insurance
(SSDI) or Supplemental Security Income (SSI) benefits indicating that
the borrower's next scheduled disability review will be within five to
seven years.
(v) The borrower must submit the application described in paragraph
(c)(2)(iv) of this section to the Secretary within 90 days of the date
the physician certifies the application, if applicable.
(vi) After the Secretary receives the application described in
paragraph (c)(2)(iv) of this section, the Secretary notifies the holders
of the borrower's title IV loans, that the Secretary has received a
total and permanent disability discharge application from the borrower.
The holders of the loans must notify the applicable guaranty agencies
that the total and permanent disability discharge application has been
received.
(vii) If the application is incomplete, the Secretary notifies the
borrower of the missing information and requests the missing information
from the borrower or the physician who provided the certification, as
appropriate. The Secretary does not make a determination of eligibility
until the application is complete.
(viii) The lender notification described in paragraph (c)(2)(vi) of
this section directs the borrower's loan holders to suspend collection
activity or maintain the suspension of collection activity on the
borrower's title IV loans.
(ix) After the Secretary receives the disability discharge
application, the Secretary sends a notice to the borrower that--
(A) States that the application will be reviewed by the Secretary;
(B) Informs the borrower that the borrower's lenders will suspend
collection activity or maintain the suspension of collection activity on
the borrower's title IV loans while the Secretary reviews the borrower's
application for a discharge; and
(C) Explains the process for the Secretary's review of total and
permanent disability discharge applications.
(3) Secretary's review of total and permanent disability discharge
application. (i) If, after reviewing the borrower's completed
application, the Secretary determines that the physician's certification
or the SSA notice of award for SSDI or SSI benefits supports the
conclusion that the borrower is totally and permanently disabled, as
described in paragraph (1) of the definition of that term in
Sec. 682.200(b), the borrower is considered totally and permanently
disabled--
(A) As of the date the physician certified the borrower's
application; or
(B) As of the date the Secretary received the SSA notice of award
for SSDI or SSI benefits.
(ii) The Secretary may require the borrower to submit additional
medical evidence if the Secretary determines that the borrower's
application does not conclusively prove that the borrower is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in Sec. 682.200(b). As part of the Secretary's
[[Page 98]]
review of the borrower's discharge application, the Secretary may
require and arrange for an additional review of the borrower's condition
by an independent physician at no expense to the borrower.
(iii) After determining that the borrower is totally and permanently
disabled as described in paragraph (1) of the definition of that term in
Sec. 682.200(b), the Secretary notifies the borrower and the borrower's
lenders that the application for a disability discharge has been
approved. With this notification, the Secretary provides the date the
physician certified the borrower's loan discharge application or the
date the Secretary received the SSA notice of award for SSDI or SSI
benefits and directs each lender to submit a disability claim to the
guaranty agency so the loan can be assigned to the Secretary. The
Secretary returns any payment received by the Secretary after the date
the physician certified the borrower's loan discharge application or
received the SSA notice of award for SSDI or SSI benefits to the person
who made the payment.
(iv) After the loan is assigned, the Secretary discharges the
borrower's obligation to make further payments on the loan and notifies
the borrower and the lender that the loan has been discharged. The
notification to the borrower explains the terms and conditions under
which the borrower's obligation to repay the loan will be reinstated, as
specified in paragraph (c)(6)(i) of this section.
(v) If the Secretary determines that the physician's certification
or SSA notice of award for SSDI or SSI benefits provided by the borrower
does not support the conclusion that the borrower is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in Sec. 682.200(b), the Secretary notifies the borrower and
the lender that the application for a disability discharge has been
denied. The notification includes--
(A) The reason or reasons for the denial;
(B) A statement that the loan is due and payable to the lender under
the terms of the promissory note and that the loan will return to the
status that would have existed had the total and permanent disability
discharge application not been received;
(C) A statement that the lender will notify the borrower of the date
the borrower must resume making payments on the loan;
(D) An explanation that the borrower is not required to submit a new
total and permanent disability discharge application if the borrower
requests that the Secretary re-evaluate the application for discharge by
providing, within 12 months of the date of the notification, additional
information that supports the borrower's eligibility for discharge; and
(E) An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12
months of the date of the notification, the borrower must submit a new
total and permanent disability discharge application to the Secretary if
the borrower wishes the Secretary to re-evaluate the borrower's
eligibility for a total and permanent disability discharge.
(vi) If the borrower requests re-evaluation in accordance with
paragraph (c)(3)(v)(D) of this section or submits a new total and
permanent disability discharge application in accordance with paragraph
(c)(3)(v)(E) of this section, the request must include new information
regarding the borrower's disabling condition that was not provided to
the Secretary in connection with the prior application at the time the
Secretary reviewed the borrower's initial application for a total and
permanent disability discharge.
(4) Treatment of disbursements made during the period from the date
of the physician's certification or the date the Secretary received the
SSA notice of award for SSDI or SSI benefits until the date of
discharge. If a borrower received a title IV loan or TEACH Grant before
the date the physician certified the borrower's discharge application or
before the date the Secretary received the SSA notice of award for SSDI
or SSI benefits and a disbursement of that loan or grant is made during
the period from the date of the physician's certification or the
Secretary's receipt of the SSA notice of award for SSDI or SSI benefits
until the date the Secretary
[[Page 99]]
grants a discharge under this section, the processing of the borrower's
loan discharge request will be suspended until the borrower ensures that
the full amount of the disbursement has been returned to the loan holder
or to the Secretary, as applicable.
(5) Receipt of new title IV loans or TEACH Grants after the date of
the physician's certification or after the date the Secretary received
the SSA notice of award for SSDI or SSI benefits. If a borrower receives
a disbursement of a new title IV loan or receives a new TEACH Grant made
on or after the date the physician certified the borrower's discharge
application or the date the Secretary received the SSA notice of award
for SSDI or SSI benefits and before the date the Secretary grants a
discharge under this section, the Secretary denies the borrower's
discharge request and collection resumes on the borrower's loans.
(6) Conditions for reinstatement of a loan after a total and
permanent disability discharge. (i) The Secretary reinstates the
borrower's obligation to repay a loan that was discharged in accordance
with paragraph (c)(3)(iii) of this section if, within three years after
the date the Secretary granted the discharge, the borrower--
(A) Has annual earnings from employment that exceed 100 percent of
the poverty guideline for a family of two, as published annually by the
United States Department of Health and Human Services pursuant to 42
U.S.C. 9902(2);
(B) Receives a new TEACH Grant or a new loan under the Perkins or
Direct Loan programs, except for a Direct Consolidation Loan that
includes loans that were not discharged; or
(C) Fails to ensure that the full amount of any disbursement of a
title IV loan or TEACH Grant received prior to the discharge date that
is made is returned to the loan holder or to the Secretary, as
applicable, within 120 days of the disbursement date; or
(D) Receives a notice from the SSA indicating that the borrower is
no longer disabled or that the borrower's continuing disability review
will no longer be the five- to seven-year period indicated in the SSA
notice of award for SSDI or SSI benefits.
(ii) If the borrower's obligation to repay a loan is reinstated, the
Secretary--
(A) Notifies the borrower that the borrower's obligation to repay
the loan has been reinstated;
(B) Returns the loan to the status that would have existed if the
total and permanent disability discharge application had not been
received; and
(C) Does not require the borrower to pay interest on the loan for
the period from the date the loan was discharged until the date the
borrower's obligation to repay the loan was reinstated.
(iii) The Secretary's notification under paragraph (c)(6)(ii)(A) of
this section will include--
(A) The reason or reasons for the reinstatement;
(B) An explanation that the first payment due date on the loan
following reinstatement will be no earlier than 60 days after the date
of the notification of reinstatement; and
(C) Information on how the borrower may contact the Secretary if the
borrower has questions about the reinstatement or believes that the
obligation to repay the loan was reinstated based on incorrect
information.
(7) Borrower's responsibilities after a total and permanent
disability discharge. During the three-year period described in
paragraph (c)(6)(i) of this section, the borrower must--
(i) Promptly notify the Secretary of any changes in the borrower's
address or phone number;
(ii) Promptly notify the Secretary if the borrower's annual earnings
from employment exceed the amount specified in paragraph (c)(6)(i)(A) of
this section;
(iii) Provide the Secretary, upon request, with documentation of the
borrower's annual earnings from employment, on a form approved by the
Secretary; or
(iv) Promptly notify the Secretary if the borrower receives a notice
from the SSA indicating that the borrower is no longer disabled or that
the borrower's continuing disability review will no longer be the five-
to seven-year period indicated in the SSA notice of award for SSDI or
SSI benefits.
(8) Lender and guaranty agency actions. (i) If the Secretary
approves the
[[Page 100]]
borrower's total and permanent disability discharge application--
(A) The lender must submit a disability claim to the guaranty
agency, in accordance with paragraph (g)(1) of this section;
(B) If the claim satisfies the requirements of paragraph (g)(1) of
this section and Sec. 682.406, the guaranty agency must pay the claim
submitted by the lender;
(C) After receiving a claim payment from the guaranty agency, the
lender must return to the sender any payments received by the lender
after the date the physician certified the borrower's loan discharge
application or after the date the Secretary received the SSA notice of
award for SSDI or SSI benefits as well as any payments received after
claim payment from or on behalf of the borrower;
(D) The Secretary reimburses the guaranty agency for a disability
claim paid to the lender after the agency pays the claim to the lender;
and
(E) The guaranty agency must assign the loan to the Secretary within
45 days of the date the guaranty agency pays the disability claim and
receives the reimbursement payment, or within 45 days of the date the
guaranty agency receives the notice described in paragraph (c)(3)(iii)
of this section if a guaranty agency is the lender.
(ii) If the Secretary does not approve the borrower's total and
permanent disability discharge request, the lender must resume
collection of the loan and is deemed to have exercised forbearance of
payment of both principal and interest from the date collection activity
was suspended. The lender may capitalize, in accordance with
Sec. 682.202(b), any interest accrued and not paid during that period,
except if the lender is a guaranty agency it may not capitalize accrued
interest.
(9) Discharge application process for veterans who are totally and
permanently disabled as described in paragraph (2) of the definition of
that term in Sec. 682.200(b)--(i) General. If a veteran notifies the
lender that the veteran claims to be totally and permanently disabled as
described in paragraph (2) of the definition of that term in
Sec. 682.200(b), the lender must direct the veteran to notify the
Secretary of the veteran's intent to submit an application for a total
and permanent disability discharge and provide the veteran with the
information needed for the veteran to apply for a total and permanent
disability discharge to the Secretary.
(ii) If the veteran notifies the Secretary of the veteran's intent
to apply for a total and permanent disability discharge, the Secretary--
(A) Provides the veteran with information needed for the veteran to
apply for a total and permanent disability discharge;
(B) Identifies all title IV loans owed by the veteran and notifies
the lenders of the veteran's intent to apply for a total and permanent
disability discharge;
(C) Directs the lenders to suspend efforts to collect from the
veteran for a period not to exceed 120 days; and
(D) Informs the veteran that the suspension of collection activity
described in paragraph (c)(9)(ii)(C) of this section will end after 120
days and the lender will resume collection on the loans if the veteran
does not submit a total and permanent disability discharge application
to the Secretary within that time.
(iii) If the veteran fails to submit an application for a total and
permanent disability discharge to the Secretary within 120 days,
collection resumes on the veteran's title IV loans and the lender is
deemed to have exercised forbearance of principal and interest from the
date it suspended collection activity. The lender may capitalize, in
accordance with Sec. 682.202(b), any interest accrued and not paid
during that period, except that if the lender is a guaranty agency it
may not capitalize accrued interest.
(iv) The veteran must submit to the Secretary an application for a
total and permanent disability discharge on a form approved by the
Secretary.
(v) The application must be accompanied by documentation from the
Department of Veterans Affairs showing that the Department of Veterans
Affairs has determined that the veteran is unemployable due to a
service-connected disability. The veteran will not be required to
provide any additional documentation related to the veteran's
disability.
[[Page 101]]
(vi) After the Secretary receives the application and supporting
documentation described in paragraphs (c)(9)(iv) and (c)(9)(v) of this
section, the Secretary notifies the holders of the veteran's title IV
loans, that the Secretary has received a total and permanent disability
discharge application from the veteran. The holders of the loans must
notify the applicable guaranty agencies that the total and permanent
disability discharge application has been received.
(vii) If the application is incomplete, the Secretary notifies the
veteran of the missing information and requests the missing information
from the veteran or the veteran's representative. The Secretary does not
make a determination of eligibility until the application is complete.
(viii) The lender notification described in paragraph (c)(9)(vi) of
this section directs the lenders to suspend collection activity or
maintain the suspension of collection activity on the veteran's title IV
loans.
(ix) After the Secretary receives the disability discharge
application, the Secretary sends a notice to the veteran that--
(A) States that the application will be reviewed by the Secretary;
(B) Informs the veteran that the veteran's lenders will suspend
collection activity on the veteran's title IV loans while the Secretary
reviews the veteran's application for a discharge; and
(C) Explains the process for the Secretary's review of total and
permanent disability discharge applications.
(x) After making a determination that the veteran is totally and
permanently disabled as described in paragraph (2) of the definition of
that term in Sec. 682.200(b), the Secretary notifies the veteran and the
veteran's lenders that the application for a disability discharge has
been approved. With this notification, the Secretary provides the
effective date of the determination and directs each lender to submit a
disability claim to the guaranty agency.
(xi) If the Secretary determines, based on a review of the
documentation from the Department of Veterans Affairs, that the veteran
is not totally and permanently disabled as described in paragraph (2) of
the definition of that term in Sec. 682.200(b), the Secretary notifies
the veteran and the lender that the application for a disability
discharge has been denied. The notification includes--
(A) The reason or reasons for the denial;
(B) An explanation that the loan is due and payable to the lender
under the terms of the promissory note and that the loan will return to
the status it was in at the time the veteran applied for a total and
permanent disability discharge;
(C) An explanation that the lender will notify the veteran of the
date the veteran must resume making payments on the loan;
(D) An explanation that the veteran is not required to submit a new
total and permanent disability discharge application if the veteran
requests that the Secretary re-evaluate the application for discharge by
providing, within 12 months of the date of the notification, additional
documentation from the Department of Veterans Affairs that supports the
veteran's eligibility for discharge; and
(E) Information on how the veteran may reapply for a total and
permanent disability discharge in accordance with procedures described
in paragraphs (c)(2) through (c)(8) of this section, if the
documentation from the Department of Veterans Affairs does not indicate
that the veteran is totally and permanently disabled as described in
paragraph (2) of the definition of that term in Sec. 682.200(b), but
indicates that the veteran may be totally and permanently disabled as
described in paragraph (1) of the definition of that term.
(xii)(A) If the Secretary approves the veteran's total and permanent
disability discharge application based on documentation from the
Department of Veterans Affairs the lender must submit a disability claim
to the guaranty agency, in accordance with paragraph (g)(1) of this
section.
(B) If the claim meets the requirements of paragraph (g)(1) of this
section and Sec. 682.406, the guaranty agency must pay the claim and
discharge the loan.
(C) The Secretary reimburses the guaranty agency for a disability
claim
[[Page 102]]
after the agency pays the claim to the lender.
(D) Upon receipt of the claim payment from the guaranty agency, the
lender returns any payments received by the lender on or after the
effective date of the determination by the Department of Veterans
Affairs to the person who made the payments.
(E) If the Secretary does not approve the veteran's total and
permanent disability discharge application based on documentation from
the Department of Veterans Affairs, the lender must resume collection
and is deemed to have exercised forbearance of payment of both principal
and interest from the date collection activity was suspended. The lender
may capitalize, in accordance with Sec. 682.202(b), any interest accrued
and not paid during that period, except that if the lender is a guaranty
agency it may not capitalize accrued interest.
(d) Closed school--(1) General. (i) The Secretary reimburses the
holder of a loan received by a borrower on or after January 1, 1986, and
discharges the borrower's obligation with respect to the loan in
accordance with the provisions of paragraph (d) of this section, if the
borrower (or the student for whom a parent received a PLUS loan) could
not complete the program of study for which the loan was intended
because the school at which the borrower (or student) was enrolled
closed, or the borrower (or student) withdrew from the school not more
than 120 days prior to the date the school closed. The Secretary may
extend the 120-day period if the Secretary determines that exceptional
circumstances related to a school's closing justify an extension.
Exceptional circumstances for this purpose may include, but are not
limited to: the school's loss of accreditation; the school's
discontinuation of the majority of its academic programs; action by the
State to revoke the school's license to operate or award academic
credentials in the State; or a finding by a State or Federal government
agency that the school violated State or Federal law.
(ii) For purposes of the closed school discharge authorized by this
section--
(A) A school's closure date is the date that the school ceases to
provide educational instruction in all programs, as determined by the
Secretary;
(B) The term ``borrower'' includes all endorsers on a loan; and
(C) A ``school'' means a school's main campus or any location or
branch of the main campus, regardless of whether the school or its
location or branch is considered eligible.
(2) Relief available pursuant to discharge. (i) Discharge under
paragraph (d) of this section relieves the borrower of an existing or
past obligation to repay the loan and any charges imposed or costs
incurred by the holder with respect to the loan that the borrower is, or
was otherwise obligated to pay.
(ii) A discharge of a loan under paragraph (d) of this section
qualifies the borrower for reimbursement of amounts paid voluntarily or
through enforced collection on a loan obligation discharged under
paragraph (d) of this section.
(iii) A borrower who has defaulted on a loan discharged under
paragraph (d) of this section is not regarded as in default on the loan
after discharge, and is eligible to receive assistance under the Title
IV, HEA programs.
(iv) A discharge of a loan under paragraph (d) of this section must
be reported by the loan holder to all credit reporting agencies to which
the holder previously reported the status of the loan, so as to delete
all adverse credit history assigned to the loan.
(3) Borrower qualification for discharge. Except as provided in
paragraph (d)(8) of this section, in order to qualify for a discharge of
a loan under paragraph (d) of this section, a borrower must submit a
written request and sworn statement to the holder of the loan. The
statement need not be notarized, but must be made by the borrower under
the penalty of perjury, and, in the statement, the borrower must state--
(i) Whether the student has made a claim with respect to the
school's closing with any third party, such as the holder of a
performance bond or a tuition recovery program, and if so, the amount of
any payment received by the borrower (or student) or credited to the
borrower's loan obligation;
[[Page 103]]
(ii) That the borrower (or the student for whom a parent received a
PLUS loan)--
(A) Received, on or after January 1, 1986, the proceeds of any
disbursement of a loan disbursed, in whole or in part, on or after
January 1, 1986 to attend a school;
(B) Did not complete the educational program at that school because
the school closed while the student was enrolled or on an approved leave
of absence in accordance with Sec. 682.605(c), or the student withdrew
from the school not more than 120 days before the school closed; and
(C) Did not complete the program of study through a teach-out at
another school or by transferring academic credits or hours earned at
the closed school to another school;
(iii) That the borrower agrees to provide, upon request by the
Secretary or the Secretary's designee, other documentation reasonably
available to the borrower that demonstrates, to the satisfaction of the
Secretary or the Secretary's designee, that the student meets the
qualifications in paragraph (d) of this section; and
(iv) That the borrower agrees to cooperate with the Secretary or the
Secretary's designee in enforcement actions in accordance with paragraph
(d)(4) of this section, and to transfer any right to recovery against a
third party in accordance with paragraph (d)(5) of this section.
(4) Cooperation by borrower in enforcement actions. (i) In any
judicial or administrative proceeding brought by the Secretary or the
Secretary's designee to recover for amounts discharged under paragraph
(d) of this section or to take other enforcement action with respect to
the conduct on which those claims were based, a borrower who requests or
receives a discharge under paragraph (d) of this section must cooperate
with the Secretary or the Secretary's designee. At the request of the
Secretary or the Secretary's designee, and upon the Secretary's or the
Secretary's designee's tendering to the borrower the fees and costs as
are customarily provided in litigation to reimburse witnesses, the
borrower shall--
(A) Provide testimony regarding any representation made by the
borrower to support a request for discharge; and
(B) Produce any documentation reasonably available to the borrower
with respect to those representations and any sworn statement required
by the Secretary with respect to those representations and documents.
(ii) The Secretary revokes the discharge, or denies the request for
discharge, of a borrower who--
(A) Fails to provide testimony, sworn statements, or documentation
to support material representations made by the borrower to obtain the
discharge; or
(B) Provides testimony, a sworn statement, or documentation that
does not support the material representations made by the borrower to
obtain the discharge.
(5) Transfer to the Secretary of borrower's right of recovery
against third parties. (i) Upon discharge under paragraph (d) of this
section, the borrower is deemed to have assigned to and relinquished in
favor of the Secretary any right to a loan refund (up to the amount
discharged) that the borrower (or student) may have by contract or
applicable law with respect to the loan or the enrollment agreement for
the program for which the loan was received, against the school, its
principals, affiliates and their successors, its sureties, and any
private fund, including the portion of a public fund that represents
funds received from a private party.
(ii) The provisions of paragraph (d) of this section apply
notwithstanding any provision of State law that would otherwise restrict
transfer of such rights by the borrower (or student), limit or prevent a
transferee from exercising those rights, or establish procedures or a
scheme of distribution that would prejudice the Secretary's ability to
recover on those rights.
(iii) Nothing in this section shall be construed as limiting or
foreclosing the borrower's (or student's) right to pursue legal and
equitable relief regarding disputes arising from matters otherwise
unrelated to the loan discharged.
(6) Guaranty agency responsibilities--(i) Procedures applicable if a
school closed on or after January 1, 1986, but prior to
[[Page 104]]
June 13, 1994. (A) If a borrower received a loan for attendance at a
school with a closure date on or after January 1, 1986, but prior to
June 13, 1994, the loan may be discharged in accordance with the
procedures specified in paragraph (d)(6)(i) of this section.
(B) If a loan subject to paragraph (d) of this section was
discharged in part in accordance with the Secretary's ``Closed School
Policy'' as authorized by section IV of Bulletin 89-G-159, the guaranty
agency shall initiate the discharge of the remaining balance of the loan
not later than August 13, 1994.
(C) A guaranty agency shall review its records and identify all
schools that appear to have closed on or after January 1, 1986 and prior
to June 13, 1994, and shall identify the loans made to any borrower (or
student) who appears to have been enrolled at the school on the school
closure date or who withdrew not more than 120 days prior to the closure
date.
(D) A guaranty agency shall notify the Secretary immediately if it
determines that a school not previously known to have closed appears to
have closed, and, within 30 days of making that determination, notify
all lenders participating in its program to suspend collection efforts
against individuals with respect to loans made for attendance at the
closed school, if the student to whom (or on whose behalf) a loan was
made, appears to have been enrolled at the school on the closing date,
or withdrew not more than 120 days prior to the date the school appears
to have closed. Within 30 days after receiving confirmation of the date
of a school's closure from the Secretary, the agency shall--
(1) Notify all lenders participating in its program to mail a
discharge application explaining the procedures and eligibility criteria
for obtaining a discharge and an explanation of the information that
must be included in the sworn statement (which may be combined) to all
borrowers who may be eligible for a closed school discharge; and
(2) Review the records of loans that it holds, identify the loans
made to any borrower (or student) who appears to have been enrolled at
the school on the school closure date or who withdrew not more than 120
days prior to the closure date, and mail a discharge application and an
explanation of the information that must be included in the sworn
statement (which may be combined) to the borrower. The application shall
inform the borrower of the procedures and eligibility criteria for
obtaining a discharge.
(E) If a loan identified under paragraph (d)(6)(i)(D)(2) of this
section is held by the guaranty agency as a defaulted loan and the
borrower's current address is known, the guaranty agency shall
immediately suspend any efforts to collect from the borrower on any loan
received for the program of study for which the loan was made (but may
continue to receive borrower payments), and notify the borrower that the
agency will provide additional information about the procedures for
requesting a discharge after the agency has received confirmation from
the Secretary that the school had closed.
(F) If a loan identified under paragraph (d)(6)(i)(D)(2) of this
section is held by the guaranty agency as a defaulted loan and the
borrower's current address is unknown, the agency shall, by June 13,
1995, further refine the list of borrowers whose loans are potentially
subject to discharge under paragraph (d) of this section by consulting
with representatives of the closed school, the school's licensing
agency, accrediting agency, and other appropriate parties. Upon learning
the new address of a borrower who would still be considered potentially
eligible for a discharge, the guaranty agency shall, within 30 days
after learning the borrower's new address, mail to the borrower a
discharge application that meets the requirements of paragraph
(d)(6)(i)(E) of this section.
(G) If the guaranty agency determines that a borrower identified in
paragraph (d)(6)(i)(E) or (F) of this section has satisfied all of the
conditions required for a discharge, the agency shall notify the
borrower in writing of that determination within 30 days after making
that determination.
(H) If the guaranty agency determines that a borrower identified in
paragraph (d)(6)(i)(E) or (F) of this section does not qualify for a
discharge, the agency shall notify the borrower in writing of that
determination and the
[[Page 105]]
reasons for it within 30 days after the date the agency--
(1) Made that determination based on information available to the
guaranty agency;
(2) Was notified by the Secretary that the school had not closed;
(3) Was notified by the Secretary that the school had closed on a
date that was more than 120 days after the borrower (or student)
withdrew from the school;
(4) Was notified by the Secretary that the borrower (or student) was
ineligible for a closed school discharge for other reasons; or
(5) Received the borrower's completed application and sworn
statement.
(I) If a borrower described in paragraph (d)(6)(i)(E) or (F) of this
section fails to submit the written request and sworn statement
described in paragraph (d)(3) of this section within 60 days of being
notified of that option, the guaranty agency shall resume collection and
shall be deemed to have exercised forbearance of payment of principal
and interest from the date it suspended collection activity. The agency
may capitalize, in accordance with Sec. 682.202(b), any interest accrued
and not paid during that period.
(J) A borrower's request for discharge may not be denied solely on
the basis of failing to meet any time limits set by the lender, guaranty
agency, or the Secretary.
(ii) Procedures applicable if a school closed on or after June 13,
1994. (A) A guaranty agency shall notify the Secretary immediately
whenever it becomes aware of reliable information indicating a school
may have closed. The designated guaranty agency in the state in which
the school is located shall promptly investigate whether the school has
closed and, within 30 days after receiving information indicating that
the school may have closed, report the results of its investigation to
the Secretary concerning the date of the school's closure and whether a
teach-out of the closed school's program was made available to students.
(B) If a guaranty agency determines that a school appears to have
closed, it shall, within 30 days of making that determination, notify
all lenders participating in its program to suspend collection efforts
against individuals with respect to loans made for attendance at the
closed school, if the student to whom (or on whose behalf) a loan was
made, appears to have been enrolled at the school on the closing date,
or withdrew not more than 120 days prior to the date the school appears
to have closed. Within 30 days after receiving confirmation of the date
of a school's closure from the Secretary, the agency shall--
(1) Notify all lenders participating in its program to mail a
discharge application explaining the procedures and eligibility criteria
for obtaining a discharge and an explanation of the information that
must be included in the sworn statement (which may be combined) to all
borrowers who may be eligible for a closed school discharge; and
(2) Review the records of loans that it holds, identify the loans
made to any borrower (or student) who appears to have been enrolled at
the school on the school closure date or who withdrew not more than 120
days prior to the closure date, and mail a discharge application and an
explanation of the information that must be included in the sworn
statement (which may be combined) to the borrower. The application shall
inform the borrower of the procedures and eligibility criteria for
obtaining a discharge.
(C) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this
section is held by the guaranty agency as a defaulted loan and the
borrower's current address is known, the guaranty agency shall
immediately suspend any efforts to collect from the borrower on any loan
received for the program of study for which the loan was made (but may
continue to receive borrower payments), and notify the borrower that the
agency will provide additional information about the procedures for
requesting a discharge after the agency has received confirmation from
the Secretary that the school had closed.
(D) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this
section is held by the guaranty agency as a defaulted loan and the
borrower's current address is unknown, the agency shall, within one year
after identifying the
[[Page 106]]
borrower, attempt to locate the borrower and further determine the
borrower's potential eligibility for a discharge under paragraph (d) of
this section by consulting with representatives of the closed school,
the school's licensing agency, accrediting agency, and other appropriate
parties. Upon learning the new address of a borrower who would still be
considered potentially eligible for a discharge, the guaranty agency
shall, within 30 days after learning the borrower's new address, mail to
the borrower a discharge application that meets the requirements of
paragraph (d)(6)(ii)(B) of this section.
(E) If the guaranty agency determines that a borrower identified in
paragraph (d)(6)(ii)(C) or (D) of this section has satisfied all of the
conditions required for a discharge, the agency shall notify the
borrower in writing of that determination within 30 days after making
that determination.
(F) If the guaranty agency determines that a borrower identified in
paragraph (d)(6)(ii)(C) or (D) of this section does not qualify for a
discharge, the agency shall notify the borrower in writing of that
determination and the reasons for it within 30 days after the date the
agency--
(1) Made that determination based on information available to the
guaranty agency;
(2) Was notified by the Secretary that the school had not closed;
(3) Was notified by the Secretary that the school had closed on a
date that was more than 120 days after the borrower (or student)
withdrew from the school;
(4) Was notified by the Secretary that the borrower (or student) was
ineligible for a closed school discharge for other reasons; or
(5) Received the borrower's completed application and sworn
statement.
(G) Upon receipt of a closed school discharge claim filed by a
lender, the agency shall review the borrower's request and supporting
sworn statement in light of information available from the records of
the agency and from other sources, including other guaranty agencies,
state authorities, and cognizant accrediting associations, and shall
take the following actions--
(1) If the agency determines that the borrower satisfies the
requirements for discharge under paragraph (d) of this section, it shall
pay the claim in accordance with Sec. 682.402(h) not later than 90 days
after the agency received the claim; or
(2) If the agency determines that the borrower does not qualify for
a discharge, the agency shall, not later than 90 days after the agency
received the claim, return the claim to the lender with an explanation
of the reasons for its determination.
(H) If a borrower fails to submit the written request and sworn
statement described in paragraph (d)(3) of this section within 60 days
of being notified of that option, the lender or guaranty agency shall
resume collection and shall be deemed to have exercised forbearance of
payment of principal and interest from the date it suspended collection
activity. The lender or guaranty agency may capitalize, in accordance
with Sec. 682.202(b), any interest accrued and not paid during that
period.
(I) A borrower's request for discharge may not be denied solely on
the basis of failing to meet any time limits set by the lender, guaranty
agency, or the Secretary.
(7) Lender responsibilities. (i) A lender shall comply with the
requirements prescribed in paragraph (d) of this section. In the absence
of specific instructions from a guaranty agency or the Secretary, if a
lender receives information from a source it believes to be reliable
indicating that an existing or former borrower may be eligible for a
loan discharge under paragraph (d) of this section, the lender shall
immediately notify the guaranty agency, and suspend any efforts to
collect from the borrower on any loan received for the program of study
for which the loan was made (but may continue to receive borrower
payments).
(ii) If the borrower fails to submit the written request and sworn
statement described in paragraph (d)(3) of this section within 60 days
after being notified of that option, the lender shall resume collection
and shall be deemed to have exercised forbearance of payment of
principal and interest from the date the lender suspended collection
activity. The lender may capitalize, in
[[Page 107]]
accordance with Sec. 682.202(b), any interest accrued and not paid
during that period.
(iii) The lender shall file a closed school claim with the guaranty
agency in accordance with Sec. 682.402(g) no later than 60 days after
the lender receives the borrower's written request and sworn statement
described in paragraph (d)(3) of this section. If a lender receives a
payment made by or on behalf of the borrower on the loan after the
lender files a claim on the loan with the guaranty agency, the lender
shall forward the payment to the guaranty agency within 30 days of its
receipt. The lender shall assist the guaranty agency and the borrower in
determining whether the borrower is eligible for discharge of the loan.
(iv) Within 30 days after receiving reimbursement from the guaranty
agency for a closed school claim, the lender shall notify the borrower
that the loan obligation has been discharged, and request that all
consumer reporting agencies to which it previously reported the status
of the loan delete all adverse credit history assigned to the loan.
(v) Within 30 days after being notified by the guaranty agency that
the borrower's request for a closed school discharge has been denied,
the lender shall resume collection and notify the borrower of the
reasons for the denial. The lender shall be deemed to have exercised
forbearance of payment of principal and interest from the date the
lender suspended collection activity, and may capitalize, in accordance
with Sec. 682.202(b), any interest accrued and not paid during that
period.
(8) Discharge without an application. A borrower's obligation to
repay an FFEL Program loan may be discharged without an application from
the borrower if the--
(i) Borrower received a discharge on a loan pursuant to 34 CFR
674.33(g) under the Federal Perkins Loan Program, or 34 CFR 685.214
under the William D. Ford Federal Direct Loan Program; or
(ii) The Secretary or the guaranty agency, with the Secretary's
permission, determines that the borrower qualifies for a discharge based
on information in the Secretary or guaranty agency's possession.
(e) False certification by a school of a student's eligibility to
borrow and unauthorized disbursements--(1) General. (i) The Secretary
reimburses the holder of a loan received by a borrower on or after
January 1, 1986, and discharges a current or former borrower's
obligation with respect to the loan in accordance with the provisions of
paragraph (e) of this section, if the borrower's (or the student for
whom a parent received a PLUS loan) eligibility to receive the loan was
falsely certified by an eligible school. On or after July 1, 2006, the
Secretary reimburses the holder of a loan, and discharges a borrower's
obligation with respect to the loan in accordance with the provisions of
paragraph (e) of this section, if the borrower's eligibility to receive
the loan was falsely certified as a result of a crime of identity theft.
For purposes of a false certification discharge, the term ``borrower''
includes all endorsers on a loan. A student's or other individual's
eligibility to borrow shall be considered to have been falsely certified
by the school if the school--
(A) Certified the student's eligibility for a FFEL Program loan on
the basis of ability to benefit from its training and the student did
not meet the applicable requirements described in 34 CFR part 668 and
section 484(d) of the Act, as applicable and as described in paragraph
(e)(13) of this section; or
(B) Signed the borrower's name without authorization by the borrower
on the loan application or promissory note.
(C) Certified the eligibility of an individual for an FFEL Program
loan as a result of the crime of identity theft committed against the
individual, as that crime is defined in Sec. 682.402(e)(14).
(ii) The Secretary discharges the obligation of a borrower with
respect to a loan disbursement for which the school, without the
borrower's authorization, endorsed the borrower's loan check or
authorization for electronic funds transfer, unless the student for whom
the loan was made received the proceeds of the loan either by actual
delivery of the loan funds or by a credit in the amount of the contested
disbursement applied to charges owed to
[[Page 108]]
the school for that portion of the educational program completed by the
student. However, the Secretary does not reimburse the lender with
respect to any amount disbursed by means of a check bearing an
unauthorized endorsement unless the school also executed the application
or promissory note for that loan for the named borrower without that
individual's consent.
(iii) If a loan was made as a result of the crime of identity theft
that was committed by an employee or agent of the lender, or if at the
time the loan was made, an employee or agent of the lender knew of the
identity theft of the individual named as the borrower--
(A) The Secretary does not pay reinsurance, and does not reimburse
the holder, for any amount disbursed on the loan; and
(B) Any amounts received by a holder as interest benefits and
special allowance payments with respect to the loan must be refunded to
the Secretary, as provided in paragraphs (e)(8)(ii)(B)(4) and
(e)(10)(ii)(D) of this section.
(2) Relief available pursuant to discharge. (i) Discharge under
paragraph (e)(1)(i) of this section relieves the borrower of an existing
or past obligation to repay the loan certified by the school, and any
charges imposed or costs incurred by the holder with respect to the loan
that the borrower is, or was, otherwise obligated to pay.
(ii) A discharge of a loan under paragraph (e) of this section
qualifies the borrower for reimbursement of amounts paid voluntarily or
through enforced collection on a loan obligation discharged under
paragraph (e) of this section.
(iii) A borrower who has defaulted on a loan discharged under
paragraph (e) of this section is not regarded as in default on the loan
after discharge, and is eligible to receive assistance under the Title
IV, HEA programs.
(iv) A discharge of a loan under paragraph (e) of this section is
reported by the loan holder to all credit reporting agencies to which
the holder previously reported the status of the loan, so as to delete
all adverse or inaccurate credit history assigned to the loan.
(v) Discharge under paragraph (e)(1)(ii) of this section qualifies
the borrower for relief only with respect to the amount of the
disbursement discharged.
(3) Borrower qualification for discharge. Except as provided in
paragraph (e)(15) of this section, to qualify for a discharge of a loan
under paragraph (e) of this section, the borrower must submit to the
holder of the loan a written request and a sworn statement. The
statement need not be notarized, but must be made by the borrower under
penalty of perjury, and, in the statement, the borrower must--
(i) State whether the student has made a claim with respect to the
school's false certification with any third party, such as the holder of
a performance bond or a tuition recovery program, and if so, the amount
of any payment received by the borrower (or student) or credited to the
borrower's loan obligation;
(ii) In the case of a borrower requesting a discharge based on
defective testing of the student's ability to benefit, state that the
borrower (or the student for whom a parent received a PLUS loan)--
(A) Received, on or after January 1, 1986, the proceeds of any
disbursement of a loan disbursed, in whole or in part, on or after
January 1, 1986 to attend a school; and
(B) Was admitted to that school on the basis of ability to benefit
from its training and did not meet the applicable requirements for
admission on the basis of ability to benefit as described in paragraph
(e)(13) of this section;
(iii) In the case of a borrower requesting a discharge because the
school signed the borrower's name on the loan application or promissory
note--
(A) State that the signature on either of those documents was not
the signature of the borrower; and
(B) Provide five different specimens of his or her signature, two of
which must be not earlier or later than one year before or after the
date of the contested signature;
(iv) In the case of a borrower requesting a discharge because the
school, without authorization of the borrower, endorsed the borrower's
name on the loan check or signed the authorization for electronic funds
transfer or master check, the borrower shall--
[[Page 109]]
(A) Certify that he or she did not endorse the loan check or sign
the authorization for electronic funds transfer or master check, or
authorize the school to do so;
(B) Provide five different specimens of his or her signature, two of
which must be not earlier or later than one year before or after the
date of the contested signature; and
(C) State that the proceeds of the contested disbursement were not
received either through actual delivery of the loan funds or by a credit
in the amount of the contested disbursement applied to charges owed to
the school for that portion of the educational program completed by the
student;
(v) In the case of an individual who is requesting a discharge of a
loan because the individual's eligibility was falsely certified as a
result of a crime of identity theft committed against the individual--
(A) Certify that the individual did not sign the promissory note, or
that any other means of identification used to obtain the loan was used
without the authorization of the individual claiming relief;
(B) Certify that the individual did not receive or benefit from the
proceeds of the loan with knowledge that the loan had been made without
the authorization of the individual;
(C) Provide a copy of a local, State, or Federal court verdict or
judgment that conclusively determines that the individual who is named
as the borrower of the loan was the victim of a crime of identity theft
by a perpetrator named in the verdict or judgment;
(D) If the judicial determination of the crime does not expressly
state that the loan was obtained as a result of the crime, provide--
(1) Authentic specimens of the signature of the individual, as
provided in paragraph (e)(3)(iii)(B), or other means of identification
of the individual, as applicable, corresponding to the means of
identification falsely used to obtain the loan; and
(2) A statement of facts that demonstrate, to the satisfaction of
the Secretary, that eligibility for the loan in question was falsely
certified as a result of the crime of identity theft committed against
that individual.
(vi) That the borrower agrees to provide upon request by the
Secretary or the Secretary's designee, other documentation reasonably
available to the borrower, that demonstrates, to the satisfaction of the
Secretary or the Secretary's designee, that the student meets the
qualifications in paragraph (e) of this section; and
(vii) That the borrower agrees to cooperate with the Secretary or
the Secretary's designee in enforcement actions in accordance with
paragraph (e)(4) of this section, and to transfer any right to recovery
against a third party in accordance with paragraph (e)(5) of this
section.
(4) Cooperation by borrower in enforcement actions. (i) In any
judicial or administrative proceeding brought by the Secretary or the
Secretary's designee to recover for amounts discharged under paragraph
(e) of this section or to take other enforcement action with respect to
the conduct on which those claims were based, a borrower who requests or
receives a discharge under paragraph (e) of this section must cooperate
with the Secretary or the Secretary's designee. At the request of the
Secretary or the Secretary's designee, and upon the Secretary's or the
Secretary's designee's tendering to the borrower the fees and costs as
are customarily provided in litigation to reimburse witnesses, the
borrower shall--
(A) Provide testimony regarding any representation made by the
borrower to support a request for discharge; and
(B) Produce any documentation reasonably available to the borrower
with respect to those representations and any sworn statement required
by the Secretary with respect to those representations and documents.
(ii) The Secretary revokes the discharge, or denies the request for
discharge, of a borrower who--
(A) Fails to provide testimony, sworn statements, or documentation
to support material representations made by the borrower to obtain the
discharge; or
(B) Provides testimony, a sworn statement, or documentation that
does not support the material representations made by the borrower to
obtain the discharge.
[[Page 110]]
(5) Transfer to the Secretary of borrower's right of recovery
against third parties. (i) Upon discharge under paragraph (e) of this
section, the borrower is deemed to have assigned to and relinquished in
favor of the Secretary any right to a loan refund (up to the amount
discharged) that the borrower (or student) may have by contract or
applicable law with respect to the loan or the enrollment agreement for
the program for which the loan was received, against the school, its
principals, affiliates and their successors, its sureties, and any
private fund, including the portion of a public fund that represents
funds received from a private party.
(ii) The provisions of paragraph (e) of this section apply
notwithstanding any provision of state law that would otherwise restrict
transfer of such rights by the borrower (or student), limit or prevent a
transferee from exercising those rights, or establish procedures or a
scheme of distribution that would prejudice the Secretary's ability to
recover on those rights.
(iii) Nothing in this section shall be construed as limiting or
foreclosing the borrower's (or student's) right to pursue legal and
equitable relief regarding disputes arising from matters otherwise
unrelated to the loan discharged.
(6) Guaranty agency responsibilities--general. (i) A guaranty agency
shall notify the Secretary immediately whenever it becomes aware of
reliable information indicating that a school may have falsely certified
a student's eligibility or caused an unauthorized disbursement of loan
proceeds, as described in paragraph (e)(3) of this section. The
designated guaranty agency in the state in which the school is located
shall promptly investigate whether the school has falsely certified a
student's eligibility and, within 30 days after receiving information
indicating that the school may have done so, report the results of its
preliminary investigation to the Secretary.
(ii) If the guaranty agency receives information it believes to be
reliable indicating that a borrower whose loan is held by the agency may
be eligible for a discharge under paragraph (e) of this section, the
agency shall immediately suspend any efforts to collect from the
borrower on any loan received for the program of study for which the
loan was made (but may continue to receive borrower payments), and
inform the borrower of the procedures for requesting a discharge.
(iii) If the borrower fails to submit the written request and sworn
statement described in paragraph (e)(3) of this section within 60 days
of being notified of that option, the guaranty agency shall resume
collection and shall be deemed to have exercised forbearance of payment
of principal and interest from the date it suspended collection
activity. The agency may capitalize, in accordance with Sec. 682.202(b),
any interest accrued and not paid during that period.
(iv) Upon receipt of a discharge claim filed by a lender or a
request submitted by a borrower with respect to a loan held by the
guaranty agency, the agency shall have up to 90 days to determine
whether the discharge should be granted. The agency shall review the
borrower's request and supporting sworn statement in light of
information available from the records of the agency and from other
sources, including other guaranty agencies, state authorities, and
cognizant accrediting associations.
(v) A borrower's request for discharge and sworn statement may not
be denied solely on the basis of failing to meet any time limits set by
the lender, the Secretary or the guaranty agency.
(7) Guaranty agency responsibilities with respect to a claim filed
by a lender based on the borrower's assertion that he or she did not
sign the loan application or the promissory note that he or she was a
victim of the crime of identity theft, or that the school failed to
test, or improperly tested, the student's ability to benefit. (i) The
agency shall evaluate the borrower's request and consider relevant
information it possesses and information available from other sources,
and follow the procedures described in paragraph (e)(7) of this section.
(ii) If the agency determines that the borrower satisfies the
requirements for discharge under paragraph (e) of this section, it
shall, not later than 30 days after the agency makes that determination,
pay the claim in accordance with Sec. 682.402(h) and--
[[Page 111]]
(A) Notify the borrower that his or her liability with respect to
the amount of the loan has been discharged, and that the lender has been
informed of the actions required under paragraph (e)(7)(ii)(C) of this
section;
(B) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount; and
(C) Notify the lender that the borrower's liability with respect to
the amount of the loan has been discharged, and that the lender must--
(1) Immediately terminate any collection efforts against the
borrower with respect to the discharged loan amount and any charges
imposed or costs incurred by the lender related to the discharged loan
amount that the borrower is, or was, otherwise obligated to pay; and
(2) Within 30 days, report to all credit reporting agencies to which
the lender previously reported the status of the loan, so as to delete
all adverse credit history assigned to the loan; and
(D) Within 30 days, demand payment in full from the perpetrator of
the identity theft committed against the individual, and if payment is
not received, pursue collection action thereafter against the
perpetrator.
(iii) If the agency determines that the borrower does not qualify
for a discharge, it shall, within 30 days after making that
determination--
(A) Notify the lender that the borrower's liability on the loan is
not discharged and that, depending on the borrower's decision under
paragraph (e)(7)(iii)(B) of this section, the loan shall either be
returned to the lender or paid as a default claim; and
(B) Notify the borrower that the borrower does not qualify for
discharge, and state the reasons for that conclusion. The agency shall
advise the borrower that he or she remains obligated to repay the loan
and warn the borrower of the consequences of default, and explain that
the borrower will be considered to be in default on the loan unless the
borrower submits a written statement to the agency within 30 days
stating that the borrower--
(1) Acknowledges the debt and, if payments are due, will begin or
resume making those payments to the lender; or
(2) Requests the Secretary to review the agency's decision.
(iv) Within 30 days after receiving the borrower's written statement
described in paragraph (e)(7)(iii)(B)(1) of this section, the agency
shall return the claim file to the lender and notify the lender to
resume collection efforts if payments are due.
(v) Within 30 days after receiving the borrower's request for review
by the Secretary, the agency shall forward the claim file to the
Secretary for his review and take the actions required under paragraph
(e)(11) of this section.
(vi) The agency shall pay a default claim to the lender within 30
days after the borrower fails to return either of the written statements
described in paragraph (e)(7)(iii)(B) of this section.
(8) Guaranty agency responsibilities with respect to a claim filed
by a lender based only on the borrower's assertion that he or she did
not sign the loan check or the authorization for the release of loan
funds via electronic funds transfer or master check. (i) The agency
shall evaluate the borrower's request and consider relevant information
it possesses and information available from other sources, and follow
the procedures described in paragraph (e)(8) of this section.
(ii) If the agency determines that a borrower who asserts that he or
she did not endorse the loan check satisfies the requirements for
discharge under paragraph (e)(3)(iv) of this section, it shall, within
30 days after making that determination--
(A) Notify the borrower that his or her liability with respect to
the amount of the contested disbursement of the loan has been
discharged, and that the lender has been informed of the actions
required under paragraph (e)(8)(ii)(B) of this section;
(B) Notify the lender that the borrower's liability with respect to
the amount of the contested disbursement of the loan has been
discharged, and that the lender must--
(1) Immediately terminate any collection efforts against the
borrower with respect to the discharged loan
[[Page 112]]
amount and any charges imposed or costs incurred by the lender related
to the discharged loan amount that the borrower is, or was, otherwise
obligated to pay;
(2) Within 30 days, report to all credit reporting agencies to which
the lender previously reported the status of the loan, so as to delete
all adverse credit history assigned to the loan;
(3) Refund to the borrower, within 30 days, all amounts paid by the
borrower with respect to the loan disbursement that was discharged,
including any charges imposed or costs incurred by the lender related to
the discharged loan amount; and
(4) Refund to the Secretary, within 30 days, all interest benefits
and special allowance payments received from the Secretary with respect
to the loan disbursement that was discharged; and
(C) Transfer to the lender the borrower's written assignment of any
rights the borrower may have against third parties with respect to a
loan disbursement that was discharged because the borrower did not sign
the loan check.
(iii) If the agency determines that a borrower who asserts that he
or she did not sign the electronic funds transfer or master check
authorization satisfies the requirements for discharge under paragraph
(e)(3)(iv) of this section, it shall, within 30 days after making that
determination, pay the claim in accordance with Sec. 682.402(h) and--
(A) Notify the borrower that his or her liability with respect to
the amount of the contested disbursement of the loan has been
discharged, and that the lender has been informed of the actions
required under paragraph (e)(8)(iii)(C) of this section;
(B) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount; and
(C) Notify the lender that the borrower's liability with respect to
the contested disbursement of the loan has been discharged, and that the
lender must--
(1) Immediately terminate any collection efforts against the
borrower with respect to the discharged loan amount and any charges
imposed or costs incurred by the lender related to the discharged loan
amount that the borrower is, or was, otherwise obligated to pay; and
(2) Within 30 days, report to all credit reporting agencies to which
the lender previously reported the status of the loan, so as to delete
all adverse credit history assigned to the loan.
(iv) If the agency determines that the borrower does not qualify for
a discharge, it shall, within 30 days after making that determination--
(A) Notify the lender that the borrower's liability on the loan is
not discharged and that, depending on the borrower's decision under
paragraph (e)(8)(iv)(B) of this section, the loan shall either be
returned to the lender or paid as a default claim; and
(B) Notify the borrower that the borrower does not qualify for
discharge, and state the reasons for that conclusion. The agency shall
advise the borrower that he or she remains obligated to repay the loan
and warn the borrower of the consequences of default, and explain that
the borrower will be considered to be in default on the loan unless the
borrower submits a written statement to the agency within 30 days
stating that the borrower--
(1) Acknowledges the debt and, if payments are due, will begin or
resume making those payments to the lender; or
(2) Requests the Secretary to review the agency's decision.
(v) Within 30 days after receiving the borrower's written statement
described in paragraph (e)(8)(iv)(B)(1) of this section, the agency
shall return the claim file to the lender and notify the lender to
resume collection efforts if payments are due.
(vi) Within 30 days after receiving the borrower's request for
review by the Secretary, the agency shall forward the claim file to the
Secretary for his review and take the actions required under paragraph
(e)(11) of this section.
(vii) The agency shall pay a default claim to the lender within 30
days after the borrower fails to return either of the written statements
described in paragraph (e)(8)(iv)(B) of this section.
[[Page 113]]
(9) Guaranty agency responsibilities in the case of a loan held by
the agency for which a discharge request is submitted by a borrower
based on the borrower's assertion that he or she did not sign the loan
application or the promissory note, that he or she was a victim of the
crime of identity theft, or that the school failed to test, or
improperly tested, the student's ability to benefit. (i) The agency
shall evaluate the borrower's request and consider relevant information
it possesses and information available from other sources, and follow
the procedures described in paragraph (e)(9) of this section.
(ii) If the agency determines that the borrower satisfies the
requirements for discharge under paragraph (e)(3) of this section, it
shall immediately terminate any collection efforts against the borrower
with respect to the discharged loan amount and any charges imposed or
costs incurred by the agency related to the discharged loan amount that
the borrower is, or was otherwise obligated to pay and, not later than
30 days after the agency makes the determination that the borrower
satisfies the requirements for discharge--
(A) Notify the borrower that his or her liability with respect to
the amount of the loan has been discharged;
(B) Report to all credit reporting agencies to which the agency
previously reported the status of the loan, so as to delete all adverse
credit history assigned to the loan;
(C) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount; and
(D) Within 30 days, demand payment in full from the perpetrator of
the identity theft committed against the individual, and if payment is
not received, pursue collection action thereafter against the
perpetrator.
(iii) If the agency determines that the borrower does not qualify
for a discharge, it shall, within 30 days after making that
determination, notify the borrower that the borrower's liability with
respect to the amount of the loan is not discharged, state the reasons
for that conclusion, and if the borrower is not then making payments in
accordance with a repayment arrangement with the agency on the loan,
advise the borrower of the consequences of continued failure to reach
such an arrangement, and that collection action will resume on the loan
unless within 30 days the borrower--
(A) Acknowledges the debt and, if payments are due, reaches a
satisfactory arrangement to repay the loan or resumes making payments
under such an arrangement to the agency; or
(B) Requests the Secretary to review the agency's decision.
(iv) Within 30 days after receiving the borrower's request for
review by the Secretary, the agency shall forward the borrower's
discharge request and all relevant documentation to the Secretary for
his review and take the actions required under paragraph (e)(11) of this
section.
(v) The agency shall resume collection action if within 30 days of
giving notice of its determination the borrower fails to seek review by
the Secretary or agree to repay the loan.
(10) Guaranty agency responsibilities in the case of a loan held by
the agency for which a discharge request is submitted by a borrower
based only on the borrower's assertion that he or she did not sign the
loan check or the authorization for the release of loan proceeds via
electronic funds transfer or master check. (i) The agency shall evaluate
the borrower's request and consider relevant information it possesses
and information available from other sources, and follow the procedures
described in paragraph (e)(10) of this section.
(ii) If the agency determines that a borrower who asserts that he or
she did not endorse the loan check satisfies the requirements for
discharge under paragraph (e)(3)(iv) of this section, it shall refund to
the Secretary the amount of reinsurance payment received with respect to
the amount discharged on that loan less any repayments made by the
lender under paragraph (e)(10)(ii)(D)(2) of this section, and within 30
days after making that determination--
(A) Notify the borrower that his or her liability with respect to
the amount of the contested disbursement of the loan has been
discharged;
[[Page 114]]
(B) Report to all credit reporting agencies to which the agency
previously reported the status of the loan, so as to delete all adverse
credit history assigned to the loan;
(C) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount;
(D) Notify the lender to whom a claim payment was made that the
lender must refund to the Secretary, within 30 days--
(1) All interest benefits and special allowance payments received
from the Secretary with respect to the loan disbursement that was
discharged; and
(2) The amount of the borrower's payments that were refunded to the
borrower by the guaranty agency under paragraph (e)(10)(ii)(C) of this
section that represent borrower payments previously paid to the lender
with respect to the loan disbursement that was discharged;
(E) Notify the lender to whom a claim payment was made that the
lender must, within 30 days, reimburse the agency for the amount of the
loan that was discharged, minus the amount of borrower payments made to
the lender that were refunded to the borrower by the guaranty agency
under paragraph (e)(10)(ii)(C) of this section; and
(F) Transfer to the lender the borrower's written assignment of any
rights the borrower may have against third parties with respect to the
loan disbursement that was discharged.
(iii) In the case of a borrower who requests a discharge because he
or she did not sign the electronic funds transfer or master check
authorization, if the agency determines that the borrower meets the
conditions for discharge, it shall immediately terminate any collection
efforts against the borrower with respect to the discharged loan amount
and any charges imposed or costs incurred by the agency related to the
discharged loan amount that the borrower is, or was, otherwise obligated
to pay, and within 30 days after making that determination--
(A) Notify the borrower that his or her liability with respect to
the amount of the contested disbursement of the loan has been
discharged;
(B) Refund to the borrower all amounts paid by the borrower to the
lender or the agency with respect to the discharged loan amount,
including any late fees or collection charges imposed by the lender or
agency related to the discharged loan amount; and
(C) Report to all credit reporting agencies to which the lender
previously reported the status of the loan, so as to delete all adverse
credit history assigned to the loan.
(iv) The agency shall take the actions required under paragraphs
(e)(9) (iii) through (v) if the agency determines that the borrower does
not qualify for a discharge.
(11) Guaranty agency responsibilities if a borrower requests a
review by the Secretary. (i) Within 30 days after receiving the
borrower's request for review under paragraph (e)(7)(iii)(B)(2),
(e)(8)(iv)(B)(2), (e)(9)(iii)(B), or (e)(10)(iv) of this section, the
agency shall forward the borrower's discharge request and all relevant
documentation to the Secretary for his review.
(ii) The Secretary notifies the agency and the borrower of a
determination on review. If the Secretary determines that the borrower
is not eligible for a discharge under paragraph (e) of this section,
within 30 days after being so informed, the agency shall take the
actions described in paragraphs (e)(8) (iv) through (vii) or (e)(9)(iii)
through (v) of this section, as applicable.
(iii) If the Secretary determines that the borrower meets the
requirements for a discharge under paragraph (e) of this section, the
agency shall, within 30 days after being so informed, take the actions
required under paragraph (e)(7)(ii), (e)(8)(ii), (e)(8)(iii),
(e)(9)(ii), (e)(10)(ii), or (e)(10)(iii) of this section, as applicable.
(12) Lender Responsibilities. (i) If the lender is notified by a
guaranty agency or the Secretary, or receives information it believes to
be reliable from another source indicating that a current or former
borrower may be eligible for a discharge under paragraph (e) of this
section, the lender shall immediately suspend any efforts to collect
from the borrower on any loan received for the program of study for
which the loan
[[Page 115]]
was made (but may continue to receive borrower payments) and, within 30
days of receiving the information or notification, inform the borrower
of the procedures for requesting a discharge.
(ii) If the borrower fails to submit the written request and sworn
statement described in paragraph (e)(3) of this section within 60 days
of being notified of that option, the lender shall resume collection and
shall be deemed to have exercised forbearance of payment of principal
and interest from the date the lender suspended collection activity. The
lender may capitalize, in accordance with Sec. 682.202(b), any interest
accrued and not paid during that period.
(iii) The lender shall file a claim with the guaranty agency in
accordance with Sec. 682.402(g) no later than 60 days after the lender
receives the borrower's written request and sworn statement described in
paragraph (e)(3) of this section. If a lender receives a payment made by
or on behalf of the borrower on the loan after the lender files a claim
on the loan with the guaranty agency, the lender shall forward the
payment to the guaranty agency within 30 days of its receipt. The lender
shall assist the guaranty agency and the borrower in determining whether
the borrower is eligible for discharge of the loan.
(iv) The lender shall comply with all instructions received from the
Secretary or a guaranty agency with respect to loan discharges under
paragraph (e) of this section.
(v) The lender shall review a claim that the borrower did not
endorse and did not receive the proceeds of a loan check. The lender
shall take the actions required under paragraphs (e)(8)(ii)(A) and (B)
of this section if it determines that the borrower did not endorse the
loan check, unless the lender secures persuasive evidence that the
proceeds of the loan were received by the borrower or the student for
whom the loan was made, as provided in paragraph (e)(1)(ii). If the
lender determines that the loan check was properly endorsed or the
proceeds were received by the borrower or student, the lender may
consider the borrower's objection to repayment as a statement of
intention not to repay the loan, and may file a claim with the guaranty
agency for reimbursement on that ground, but shall not report the loan
to consumer reporting agencies as in default until the guaranty agency,
or, as applicable, the Secretary, reviews the claim for relief. By
filing such a claim, the lender shall be deemed to have agreed to the
following--
(A) If the guarantor or the Secretary determines that the borrower
endorsed the loan check or the proceeds of the loan were received by the
borrower or the student, any failure to satisfy due diligence
requirements by the lender prior to the filing of the claim that would
have resulted in the loss of reinsurance on the loan in the event of
default will be waived by the Secretary; and
(B) If the guarantor or the Secretary determines that the borrower
did not endorse the loan check and that the proceeds of the loan were
not received by the borrower or the student, the lender will comply with
the requirements specified in paragraph (e)(8)(ii)(B) of this section.
(vi) Within 30 days after being notified by the guaranty agency that
the borrower's request for a discharge has been denied, the lender shall
notify the borrower of the reasons for the denial and, if payments are
due, resume collection against the borrower. The lender shall be deemed
to have exercised forbearance of payment of principal and interest from
the date the lender suspended collection activity, and may capitalize,
in accordance with Sec. 682.202(b), any interest accrued and not paid
during that period.
(13) Requirements for certifying a borrower's eligibility for a
loan. (i) For periods of enrollment beginning between July 1, 1987 and
June 30, 1991, a student who had a general education diploma or received
one before the scheduled completion of the program of instruction is
deemed to have the ability to benefit from the training offered by the
school.
(ii) A student not described in paragraph (e)(13)(i) of this section
is considered to have the ability to benefit from training offered by
the school if the student--
[[Page 116]]
(A) For periods of enrollment beginning prior to July 1, 1987, was
determined to have the ability to benefit from the school's training in
accordance with the requirements of 34 CFR 668.6, as in existence at the
time the determination was made;
(B) For periods of enrollment beginning between July 1, 1987 and
June 30, 1996, achieved a passing grade on a test--
(1) Approved by the Secretary, for periods of enrollment beginning
on or after July 1, 1991, or by the accrediting agency for other
periods; and
(2) Administered substantially in accordance with the requirements
for use of the test;
(C) Successfully completed a program of developmental or remedial
education provided by the school; or
(D) For periods of enrollment beginning on or after July 1, 1996
through June 30, 2000--
(1) Obtained, within 12 months before the date the student initially
receives title IV, HEA program assistance, a passing score specified by
the Secretary on an independently administered test in accordance with
subpart J of 34 CFR part 668; or
(2) Enrolled in an eligible institution that participates in a State
process approved by the Secretary under subpart J of 34 CFR part 668.
(E) For periods of enrollment beginning on or after July 1, 2000--
(1) Met either of the conditions described in paragraph
(e)(13)(ii)(D) of this section; or
(2) Was home schooled and met the requirements of 34 CFR
668.32(e)(4).
(iii) Notwithstanding paragraphs (e)(13)(i) and (ii) of this
section, a student did not have the ability to benefit from training
offered by the school if--
(A) The school certified the eligibility of the student for a FFEL
Program loan; and
(B) At the time of certification, the student would not meet the
requirements for employment (in the student's State of residence) in the
occupation for which the training program supported by the loan was
intended because of a physical or mental condition, age, or criminal
record or other reason accepted by the Secretary.
(iv) Notwithstanding paragraphs (e)(13)(i) and (ii) of this section,
a student has the ability to benefit from the training offered by the
school if the student received a high school diploma or its recognized
equivalent prior to enrollment at the school.
(14) Identity theft. (i) The unauthorized use of the identifying
information of another individual that is punishable under 18 U.S.C.
1028, 1029, or 1030, or substantially comparable State or local law.
(ii) Identifying information includes, but is not limited to--
(A) Name, Social Security number, date of birth, official State or
government issued driver's license or identification number, alien
registration number, government passport number, and employer or
taxpayer identification number;
(B) Unique biometric data, such as fingerprints, voiceprint, retina
or iris image, or unique physical representation;
(C) Unique electronic identification number, address, or routing
code; or
(D) Telecommunication identifying information or access device (as
defined in 18 U.S.C. 1029(e)).
(15) Discharge without an application. A borrower's obligation to
repay all or a portion of an FFEL Program loan may be discharged without
an application from the borrower if the Secretary, or the guaranty
agency with the Secretary's permission, determines that the borrower
qualifies for a discharge based on information in the Secretary or
guaranty agency's possession.
(f) Bankruptcy--(1) General. If a borrower files a petition for
relief under the Bankruptcy Code, the Secretary reimburses the holder of
the loan for unpaid principal and interest on the loan in accordance
with paragraphs (h) through (k) of this section.
(2) Suspension of collection activity. (i) If the lender is notified
that a borrower has filed a petition for relief in bankruptcy, the
lender must immediately suspend any collection efforts outside the
bankruptcy proceeding against the borrower and--
(A) Must suspend any collection efforts against any co-maker or
endorser if the borrower has filed for relief
[[Page 117]]
under Chapters 12 or 13 of the Bankruptcy Code; or
(B) May suspend any collection efforts against any co-maker or
endorser if the borrower has filed for relief under Chapters 7 or 11 of
the Bankruptcy Code.
(ii) If the lender is notified that a co-maker or endorser has filed
a petition for relief in bankruptcy, the lender must immediately suspend
any collection efforts outside the bankruptcy proceeding against the co-
maker or endorser and--
(A) Must suspend collection efforts against the borrower and any
other parties to the note if the co-maker or endorser has filed for
relief under Chapters 12 or 13 of the Bankruptcy Code; or
(B) May suspend any collection efforts against the borrower and any
other parties to the note if the co-maker or endorser has filed for
relief under Chapters 7 or 11 of the Bankruptcy Code.
(3) Determination of filing. The lender must determine that a
borrower has filed a petition for relief in bankruptcy on the basis of
receiving a notice of the first meeting of creditors or other proof of
filing provided by the debtor's attorney or the bankruptcy court.
(4) Proof of claim. (i) Except as provided in paragraph (f)(4)(ii)
of this section, the holder of the loan shall file a proof of claim with
the bankruptcy court within--
(A) 30 days after the holder receives a notice of first meeting of
creditors unless, in the case of a proceeding under chapter 7, the
notice states that the borrower has no assets; or
(B) 30 days after the holder receives a notice from the court
stating that a chapter 7 no-asset case has been converted to an asset
case.
(ii) A guaranty agency that is a state guaranty agency, and on that
basis may assert immunity from suit in bankruptcy court, and that does
not assign any loans affected by a bankruptcy filing to another guaranty
agency--
(A) Is not required to file a proof of claim on a loan already held
by the guaranty agency; and
(B) May direct lenders not to file proofs of claim on loans
guaranteed by that agency.
(5) Filing of bankruptcy claim with the guaranty agency. (i) The
lender shall file a bankruptcy claim on the loan with the guaranty
agency in accordance with paragraph (g) of this section, if--
(A) The borrower has filed a petition for relief under chapters 12
or 13 of the Bankruptcy Code; or
(B) The borrower has filed a petition for relief under chapters 7 or
11 of the Bankruptcy Code before October 8, 1998 and the loan has been
in repayment for more than seven years (exclusive of any applicable
suspension of the repayment period) from the due date of the first
payment until the date of the filing of the petition for relief; or
(C) The borrower has begun an action to have the loan obligation
determined to be dischargeable on grounds of undue hardship.
(ii) In cases not described in paragraph (f)(5)(i) of this section,
the lender shall continue to hold the loan notwithstanding the
bankruptcy proceeding. Once the bankruptcy proceeding is completed or
dismissed, the lender shall treat the loan as if the lender had
exercised forbearance as to repayment of principal and interest accrued
from the date of the borrower's filing of the bankruptcy petition until
the date the lender is notified that the bankruptcy proceeding is
completed or dismissed.
(g) Claim procedures for a loan held by a lender--(1) Documentation.
A lender shall provide the guaranty agency with the following
documentation when filing a death, disability, closed school, false
certification, or bankruptcy claim:
(i) The original or a true and exact copy of the promissory note.
(ii) The loan application, if a separate loan application was
provided to the lender.
(iii) In the case of a death claim, an original or certified death
certificate, or other documentation supporting the discharge request
that formed the basis for the determination of death.
(iv) In the case of a disability claim, a copy of the notification
described in paragraph (c)(3)(iii) or (c)(9)(ix) of this section in
which the Secretary notifies the lender that the borrower is totally and
permanently disabled.
[[Page 118]]
(v) In the case of a bankruptcy claim--
(A) Evidence that a bankruptcy petition has been filed, all
pertinent documents sent to or received from the bankruptcy court by the
lender, and an assignment to the guaranty agency of any proof of claim
filed by the lender regarding the loan; and
(B) A statement of any facts of which the lender is aware that may
form the basis for an objection or exception to the discharge of the
borrower's loan obligation in bankruptcy and all documents supporting
those facts.
(vi) In the case of a closed school claim, the documentation
described in paragraph (d)(3) of this section, or any other
documentation as the Secretary may require;
(vii) In the case of a false certification claim, the documentation
described in paragraph (e)(3) of this section.
(2) Filing deadlines. A lender shall file a death, disability,
closed school, false certification, or bankruptcy claim within the
following periods:
(i) Within 60 days of the date on which the lender determines that a
borrower (or the student on whose behalf a parent obtained a PLUS loan)
has died.
(ii) Within 60 days of the date the lender received notification
from the Secretary that the borrower is totally and permanently
disabled, in accordance with paragraphs (c)(3)(iii) or (c)(9)(ix) of
this section.
(iii) In the case of a closed school claim, the lender shall file a
claim with the guaranty agency no later than 60 days after the borrower
submits to the lender the written request and sworn statement described
in paragraph (d)(3) of this section or after the lender is notified by
the Secretary or the Secretary's designee or by the guaranty agency to
do so.
(iv) In the case of a false certification claim, the lender shall
file a claim with the guaranty agency no later than 60 days after the
borrower submits to the lender the written request and sworn statement
described in paragraph (e)(3) of this section or after the lender is
notified by the Secretary or the Secretary's designee or by the guaranty
agency to do so.
(v) A lender shall file a bankruptcy claim with the guaranty agency
by the earlier of--
(A) 30 days after the date on which the lender receives notice of
the first meeting of creditors or other information described in
paragraph (f)(3) of this section; or
(B) 15 days after the lender is served with a complaint or motion to
have the loan determined to be dischargeable on grounds of undue
hardship, or, if the lender secures an extension of time within which an
answer may be filed, 25 days before the expiration of that extended
period, whichever is later.
(h) Payment of death, disability, closed school, false
certification, and bankruptcy claims by the guaranty agency--(1)
General. (i) Except as provided in paragraph (h)(1)(v) of this section,
the guaranty agency shall review a death, disability, bankruptcy, closed
school, or false certification claim promptly and shall pay the lender
on an approved claim the amount of loss in accordance with paragraphs
(h)(2) and (h)(3) of this section--
(A) Not later than 45 days after the claim was filed by the lender
for death, disability, and bankruptcy claims; and
(B) Not later than 90 days after the claim was filed by the lender
for closed school or false certification claims.
(ii) In the case of a bankruptcy claim, the guaranty agency shall,
upon receipt of the claim from the lender, immediately take those
actions required under paragraph (i) of this section to oppose the
discharge of the loan by the bankruptcy court.
(iii) In the case of a closed school claim or a false certification
claim based on the determination that the borrower did not sign the loan
application, the promissory note, or the authorization for the
electronic transfer of loan funds, or that the school failed to test, or
improperly tested, the student's ability to benefit, the guaranty agency
shall document its determination that the borrower is eligible for
discharge under paragraphs (d) or (e) of this section and pay the
borrower or the holder the amount determined under paragraph (h)(2) of
this section.
(iv) In reviewing a claim under this section, the issue of
confirmation of subsequent loans under an MPN will
[[Page 119]]
not be reviewed and a claim will not be denied based on the absence of
any evidence relating to confirmation in a particular loan file.
However, if a court rules that a loan is unenforceable solely because of
the lack of evidence of the confirmation process or processes, insurance
benefits must be repaid.
(v) In the case of a disability claim based on a veteran's discharge
application processed in accordance with paragraph (c)(9) of this
section, the guaranty agency must review the claim promptly and not
later than 45 days after the claim was filed by the lender pay the claim
or return the claim to the lender in accordance with paragraph
(c)(9)(xi)(B) of this section.
(2)(i) The amount of loss payable--
(A) On a death or disability claim is equal to the sum of the
remaining principal balance and interest accrued on the loan, collection
costs incurred by the lender and applied to the borrower's account
within 30 days of the date those costs were actually incurred, and
unpaid interest up to the date the lender should have filed the claim.
(B) On a bankruptcy claim is equal to the unpaid balance of
principal and interest determined in accordance with paragraph (h)(3) of
this section.
(ii) The amount of loss payable to a lender on a closed school claim
or on a false certification claim is equal to the sum of the remaining
principal balance and interest accrued on the loan, collection costs
incurred by the lender and applied to the borrower's account within 30
days of the date those costs were actually incurred, and unpaid interest
determined in accordance with paragraph (h)(3) of this section.
(iii) In the case of a closed school or false certification claim
filed by a lender on an outstanding loan owed by the borrower, on the
same date that the agency pays a claim to the lender, the agency shall
pay the borrower an amount equal to the amount paid on the loan by or on
behalf of the borrower, less any school tuition refunds or payments
received by the holder or the borrower from a tuition recovery fund,
performance bond, or other third-party source.
(iv) In the case of a claim filed by a lender based on a request
received from a borrower whose loan had been repaid in full by, or on
behalf of the borrower to the lender, on the same date that the agency
notifies the lender that the borrower is eligible for a closed school or
false certification discharge, the agency shall pay the borrower an
amount equal to the amount paid on the loan by or on behalf of the
borrower, less any school tuition refunds or payments received by the
holder or the borrower from a tuition recovery fund, performance bond,
or other third-party source.
(v) In the case of a loan that has been included in a Consolidation
Loan, the agency shall pay to the holder of the borrower's Consolidation
Loan, an amount equal to--
(A) The amount paid on the loan by or on behalf of the borrower at
the time the loan was paid through consolidation;
(B) The amount paid by the consolidating lender to the holder of the
loan when it was repaid through consolidation; minus
(C) Any school tuition refunds or payments received by the holder or
the borrower from a tuition recovery fund, performance bond, or other
third-party source if those refunds or payments were--
(1) Received by the borrower or received by the holder and applied
to the borrower's loan balance before the date the loan was repaid
through consolidation; or
(2) Received by the borrower or received by the Consolidation Loan
holder on or after the date the consolidating lender made a payment to
the former holder to discharge the borrower's obligation to that former
holder.
(3) Payment of interest. If the guarantee covers unpaid interest,
the amount payable on an approved claim includes the unpaid interest
that accrues during the following periods:
(i) During the period before the claim is filed, not to exceed the
period provided for in paragraph (g)(2) of this section for filing the
claim.
(ii) During a period not to exceed 30 days following the receipt
date by the
[[Page 120]]
lender of a claim returned by the guaranty agency for additional
documentation necessary for the claim to be approved by the guaranty
agency.
(iii) During the period required by the guaranty agency to approve
the claim and to authorize payment or to return the claim to the lender
for additional documentation not to exceed--
(A) 45 days for death, disability, or bankruptcy claims; or
(B) 90 days for closed school or false certification claims.
(i) Guaranty agency participation in bankruptcy proceedings--(1)
Undue hardship claims. (i) In response to a petition filed prior to
October 8, 1998 with regard to any bankruptcy proceeding by the borrower
for discharge under 11 U.S.C. 523(a)(8) on the grounds of undue
hardship, the guaranty agency must, on the basis of reasonably available
information, determine whether the first payment on the loan was due
more than 7 years (exclusive of any applicable suspension of the
repayment period) before the filing of that petition and, if so, process
the claim.
(ii) In all other cases, the guaranty agency must determine whether
repayment under either the current repayment schedule or any adjusted
schedule authorized under this part would impose an undue hardship on
the borrower and his or her dependents.
(iii) If the guaranty agency determines that repayment would not
constitute an undue hardship, the guaranty agency must then determine
whether the expected costs of opposing the discharge petition would
exceed one-third of the total amount owed on the loan, including
principal, interest, late charges, and collection costs. If the guaranty
agency has determined that the expected costs of opposing the discharge
petition will exceed one-third of the total amount of the loan, it may,
but is not required to, engage in the activities described in paragraph
(i)(1)(iv) of this section.
(iv) The guaranty agency must use diligence and may assert any
defense consistent with its status under applicable law to avoid
discharge of the loan. Unless discharge would be more effectively
opposed by not taking the following actions, the agency must--
(A) Oppose the borrower's petition for a determination of
dischargeability; and
(B) If the borrower is in default on the loan, seek a judgment for
the amount owed on the loan.
(v) In opposing a petition for a determination of dischargeability
on the grounds of undue hardship, a guaranty agency may agree to
discharge of a portion of the amount owed on a loan if it reasonably
determines that the agreement is necessary in order to obtain a judgment
on the remainder of the loan.
(2) Response by a guaranty agency to plans proposed under Chapters
11, 12, and 13. The guaranty agency shall take the following actions
when a petition for relief in bankruptcy under Chapters 11, 12, or 13 is
filed:
(i) The agency is not required to respond to a proposed plan that--
(A) Provides for repayment of the full outstanding balance of the
loan;
(B) Makes no provision with regard to the loan or to general
unsecured claims.
(ii) In any other case, the agency shall determine, based on a
review of its own records and documents filed by the debtor in the
bankruptcy proceeding--
(A) What part of the loan obligation will be discharged under the
plan as proposed;
(B) Whether the plan itself or the classification of the loan under
the plan meets the requirements of 11 U.S.C. 1129, 1225, or 1325, as
applicable; and
(C) Whether grounds exist under 11 U.S.C. 1112, 1208, or 1307, as
applicable, to move for conversion or dismissal of the case.
(iii) If the agency determines that grounds exist to challenge the
proposed plan, the agency shall, as appropriate, object to the plan or
move to dismiss the case, if--
(A) The costs of litigation of these actions are not reasonably
expected to exceed one-third of the amount of the loan to be discharged
under the plan; and
(B) With respect to an objection under 11 U.S.C. 1325, the
additional amount that may be recovered under the plan if an objection
is successful
[[Page 121]]
can reasonably be expected to equal or exceed the cost of litigating the
objection.
(iv) The agency shall monitor the debtor's performance under a
confirmed plan. If the debtor fails to make payments required under the
plan or seeks but does not demonstrate entitlement to discharge under 11
U.S.C. 1328(b), the agency shall oppose any requested discharge or move
to dismiss the case if the costs of litigation together with the costs
incurred for objections to the plan are not reasonably expected to
exceed one-third of the amount of the loan to be discharged under the
plan.
(j) Mandatory purchase by a lender of a loan subject to a bankruptcy
claim. (1) The lender shall repurchase from the guaranty agency a loan
held by the agency pursuant to a bankruptcy claim paid to that lender,
unless the guaranty agency sells the loan to another lender, promptly
after the earliest of the following events:
(i) The entry of an order denying or revoking discharge or
dismissing a proceeding under any chapter.
(ii) A ruling in a proceeding under chapter 7 or 11 that the loan is
not dischargeable under 11 U.S.C. 523(a)(8) or other applicable law.
(iii) The entry of an order granting discharge under chapter 12 or
13, or confirming a plan of arrangement under chapter 11, unless the
court determined that the loan is dischargeable under 11 U.S.C.
523(a)(8) on grounds of undue hardship.
(2) The lender may capitalize all outstanding interest accrued on a
loan purchased under paragraph (j) of this section to cover any periods
of delinquency prior to the bankruptcy action through the date the
lender purchases the loan and receives the supporting loan documentation
from the guaranty agency.
(k) Claims for reimbursement from the Secretary on loans held by
guarantee agencies. (1)(i) The Secretary reimburses the guaranty agency
for its losses on bankruptcy claims paid to lenders after--
(A) A determination by the court that the loan is dischargeable
under 11 U.S.C. 523(a)(8) with respect to a proceeding initiated under
chapter 7 or chapter 11; or
(B) With respect to any other loan, after the agency pays the claim
to the lender.
(ii) The guaranty agency shall refund to the Secretary the full
amount of reimbursement received from the Secretary on a loan that a
lender repurchases under this section.
(2) The Secretary pays a death, disability, bankruptcy, closed
school, or false certification claim in an amount determined under
Sec. 682.402(k)(5) on a loan held by a guaranty agency after the agency
has paid a default claim to the lender thereon and received payment
under its reinsurance agreement. The Secretary reimburses the guaranty
agency only if--
(i) The Secretary determines that the borrower (or each of the co-
makers of a PLUS loan) has become totally and permanently disabled since
applying for the loan, or the guaranty agency determines that the
borrower (or the student for whom a parent obtained a PLUS loan or each
of the co-makers of a PLUS loan) has died, or has filed for relief in
bankruptcy, in accordance with the procedures in paragraph (b), (c), or
(f) of this section, or the student was unable to complete an
educational program because the school closed, or the borrower's
eligibility to borrow (or the student's eligibility in the case of a
PLUS loan) was falsely certified by an eligible school. For purposes of
this paragraph, references to the ``lender'' and ``guaranty agency'' in
paragraphs (b) through (f) of this section mean the guaranty agency and
the Secretary respectively;
(ii) In the case of a Stafford, SLS, or PLUS loan, the Secretary
determines that the borrower (or each of the co-makers of a PLUS loan)
has become totally and permanently disabled since applying for the loan,
the guaranty agency determines that the borrower (or the student for
whom a parent obtained a PLUS loan, or each of the co-makers of a PLUS
loan) has died, or has filed the petition for relief in bankruptcy
within 10 years of the date the borrower entered repayment, exclusive of
periods of deferment or periods of forbearance granted by the lender
that
[[Page 122]]
extended the 10-year maximum repayment period, or the borrower (or the
student for whom a parent received a PLUS loan) was unable to complete
an educational program because the school closed, or the borrower's
eligibility to borrow (or the student's eligibility in the case of a
PLUS loan) was falsely certified by an eligible school;
(iii) In the case of a Consolidation loan, the borrower (or one of
the co-makers) has died, is determined by the Secretary to be totally
and permanently disabled under Sec. 682.402(c), or has filed the
petition for relief in bankruptcy within the maximum repayment period
described in Sec. 682.209(h)(2), exclusive of periods of deferment or
periods of forbearance granted by the lender that extended the maximum
repayment period;
(iv) The guaranty agency has not written off the loan in accordance
with the procedures established by the agency under
Sec. 682.410(b)(6)(x), except for closed school and false certification
discharges; and
(v) The guaranty agency has exercised due diligence in the
collection of the loan in accordance with the procedures established by
the agency under Sec. 682.410(b)(6)(x), until the borrower (or the
student for whom a parent obtained a PLUS loan, or each of the co-makers
of a PLUS loan) has died, or the borrower (or each of the co-makers of a
PLUS loan) has become totally and permanently disabled or filed a
Chapter 12 or Chapter 13 petition, or had the loan discharged in
bankruptcy, or for closed school and false certification claims, the
guaranty agency receives a request for discharge from the borrower or
another party.
(3) [Reserved]
(4) Within 30 days of receiving reimbursement for a closed school or
false certification claim, the guaranty agency shall pay--
(i) The borrower an amount equal to the amount paid on the loan by
or on behalf of the borrower, less any school tuition refunds or
payments received by the holder, guaranty agency, or the borrower from a
tuition recovery fund, performance bond, or other third-party source; or
(ii) The amount determined under paragraph (h)(2)(iv) of this
section to the holder of the borrower's Consolidation Loan.
(5) The Secretary pays the guaranty agency a percentage of the
outstanding principal and interest that is equal to the complement of
the reinsurance percentage paid on the loan. This interest includes
interest that accrues during--
(i) For death or bankruptcy claims, the shorter of 60 days or the
period from the date the guaranty agency determines that the borrower
(or the student for whom a parent obtained a PLUS loan, or each of the
co-makers of a PLUS loan) died, or filed a petition for relief in
bankruptcy until the Secretary authorizes payment;
(ii) For disability claims, the shorter of 60 days or the period
from the date the Secretary makes a determination that the borrower
became totally and permanently disabled until the Secretary authorizes
payment; or
(iii) For closed school or false certification claims, the period
from the date on which the guaranty agency received payment from the
Secretary on a default claim to the date on which the Secretary
authorizes payment of the closed school or false certification claim.
(l) Unpaid refund discharge--(1) Unpaid refunds in closed school
situations. In the case of a school that has closed, the Secretary
reimburses the guarantor of a loan and discharges a former or current
borrower's (and any endorser's) obligation to repay that portion of an
FFEL Program loan (disbursed, in whole or in part on or after January 1,
1986) equal to the refund that should have been made by the school under
applicable Federal law and regulations, including this section. Any
accrued interest and other charges (late charges, collection costs,
origination fees, and insurance premiums or Federal default fees)
associated with the unpaid refund are also discharged.
(2) Unpaid refunds in open school situations. In the case of a
school that is open, the guarantor discharges a former or current
borrower's (and any endorser's) obligation to repay that portion of an
FFEL loan (disbursed, in whole or in part, on or after January 1, 1986)
equal to the amount of the refund that should have been made by the
school under applicable Federal law
[[Page 123]]
and regulations, including this section, if--
(i) The borrower (or the student on whose behalf a parent borrowed)
is not attending the school that owes the refund; and
(ii) The guarantor receives documentation regarding the refund and
the borrower and guarantor have been unable to resolve the unpaid refund
within 120 days from the date the guarantor receivesa complete
application in accordance with paragraph (l)(4) of this section. Any
accrued interest and other charges (late charges, collection costs,
origination fees, and insurance premiums or Federal default fees)
associated with the amount of the unpaid refund amount are also
discharged.
(3) Relief to borrower (and any endorser) following discharge. (i)
If a borrower receives a discharge of a portion of a loan under this
section, the borrower is reimbursed for any amounts paid in excess of
the remaining balance of the loan (including accrued interest, late
charges, collection costs, origination fees, and insurance premiums or
Federal default fees) owed by the borrower at the time of discharge.
(ii) The holder of the loan reports the discharge of a portion of a
loan under this section to all credit reporting agencies to which the
holder of the loan previously reported the status of the loan.
(4) Borrower qualification for discharge. To receive a discharge of
a portion of a loan under this section, a borrower must submit a written
application to the holder or guaranty agency except as provided in
paragraph (l)(5)(iv) of this section. The application requests the
information required to calculate the amount of the discharge and
requires the borrower to sign a statement swearing to the accuracy of
the information in the application. The statement need not be notarized
but must be made by the borrower under penalty of perjury. In the
statement, the borrower must--
(i) State that the borrower (or the student on whose behalf a parent
borrowed)--
(A) Received the proceeds of a loan, in whole or in part, on or
after January 1, 1986 to attend a school;
(B) Did not attend, withdrew, or was terminated from the school
within a timeframe that entitled the borrower to a refund; and
(C) Did not receive the benefit of a refund to which the borrower
was entitled either from the school or from a third party, such as a
holder of a performance bond or a tuition recovery program.
(ii) State whether the borrower has any other application for
discharge pending for this loan; and
(iii) State that the borrower--
(A) Agrees to provide upon request by the Secretary or the
Secretary's designee other documentation reasonably available to the
borrower that demonstrates that the borrower meets the qualifications
for an unpaid refund discharge under this section; and
(B) Agrees to cooperate with the Secretary or the Secretary's
designee in enforcement actions in accordance with paragraph (e) of this
section and to transfer any right to recovery against a third party to
the Secretary in accordance with paragraph (d) of this section.
(5) Unpaid refund discharge procedures. (i) Except for the
requirements of paragraph (l)(5)(iv) of this section related to an open
school, if the holder or guaranty agency learns that a school did not
pay a refund of loan proceeds owed under applicable law and regulations,
the holder or the guaranty agency sends the borrower a discharge
application and an explanation of the qualifications and procedures for
obtaining a discharge. The holder of the loan also promptly suspends any
efforts to collect from the borrower on any affected loan.
(ii) If the borrower returns the application, specified in paragraph
(l)(4) of this section, the holder or the guaranty agency must review
the application to determine whether the application appears to be
complete. In the case of a loan held by a lender, once the lender
determines that the application appears complete, it must provide the
application and all pertinent information to the guaranty agency
including, if available, the borrower's last date of attendance. If the
borrower returns the application within 60 days, the lender must extend
the period during which
[[Page 124]]
efforts to collect on the affected loan are suspended to the date the
lender receives either a denial of the request or the unpaid refund
amount from the guaranty agency. At the conclusion of the period during
which the collection activity was suspended, the lender may capitalize
any interest accrued and not paid during that period in accordance with
Sec. 682.202(b).
(iii) If the borrower fails to return the application within 60
days, the holder of the loan resumes collection efforts and grants
forbearance of principal and interest for the period during which the
collection activity was suspended. The holder may capitalize any
interest accrued and not paid during that period in accordance with
Sec. 682.202(b).
(iv) The guaranty agency may, with the approval of the Secretary,
discharge a portion of a loan under this section without an application
if the guaranty agency determines, based on information in the guaranty
agency's possession, that the borrower qualifies for a discharge.
(v) If the holder of the loan or the guaranty agency determines that
the information contained in its files conflicts with the information
provided by the borrower, the guaranty agency must use the most reliable
information available to it to determine eligibility for and the
appropriate payment of the refund amount.
(vi) If the holder of the loan is the guaranty agency and the agency
determines that the borrower qualifies for a discharge of an unpaid
refund, the guaranty agency must suspend any efforts to collect on the
affected loan and, within 30 days of its determination, discharge the
appropriate amount and inform the borrower of its determination. Absent
documentation of the exact amount of refund due the borrower, the
guaranty agency must calculate the amount of the unpaid refund using the
unpaid refund calculation defined in paragraph (o) of this section.
(vii) If the guaranty agency determines that a borrower does not
qualify for an unpaid refund discharge, (or, if the holder is the lender
and is informed by the guarantor that the borrower does not qualify for
a discharge)--
(A) Within 30 days of the guarantor's determination, the agency must
notify the borrower in writing of the reason for the determination and
of the borrower's right to request a review of the agency's
determination. The guaranty agency must make a determination within 30
days of the borrower's submission of additional documentation supporting
the borrower's eligibility that was not considered in any prior
determination. During the review period, collection activities must be
suspended; and
(B) The holder must resume collection if the determination remains
unchanged and grant forbearance of principal and interest for any period
during which collection activity was suspended under this section. The
holder may capitalize any interest accrued and not paid during these
periods in accordance with Sec. 682.202(b).
(viii) If the guaranty agency determines that a current or former
borrower at an open school may be eligible for a discharge under this
section, the guaranty agency must notify the lender and the school of
the unpaid refund allegation. The notice to the school must include all
pertinent facts available to the guaranty agency regarding the alleged
unpaid refund. The school must, no later than 60 days after receiving
the notice, provide the guaranty agency with documentation
demonstrating, to the satisfaction of the guarantor, that the alleged
unpaid refund was either paid or not required to be paid.
(ix) In the case of a school that does not make a refund or provide
sufficient documentation demonstrating the refund was either paid or was
not required, within 60 days of its receipt of the allegation notice
from the guaranty agency, relief is provided to the borrower (and any
endorser) if the guaranty agency determines the relief is appropriate.
The agency must forward documentation of the school's failure to pay the
unpaid refund to the Secretary.
(m) Unpaid refund discharge procedures for a loan held by a lender.
In the case of an unpaid refund discharge request, the lender must
provide the guaranty agency with documentation related to the borrower's
qualification
[[Page 125]]
for discharge as specified in paragraph (l)(4) of this section.
(n) Payment of an unpaid refund discharge request by a guaranty
agency--(1) General. The guaranty agency must review an unpaid refund
discharge request promptly and must pay the lender the amount of loss as
defined in paragraphs (l)(1) and (l)(2) of this section, related to the
unpaid refund not later than 45 days after a properly filed request is
made.
(2) Determination of the unpaid refund discharge amount to the
lender. The amount of loss payable to a lender on an unpaid refund
includes that portion of an FFEL Program loan equal to the amount of the
refund required under applicable Federal law and regulations, including
this section, and including any accrued interest and other charges (late
charges, collection costs, origination fees, and insurance premiums or
Federal default fees) associated with the unpaid refund.
(o)(1) Determination of amount eligible for discharge. The guaranty
agency determines the amount eligible for discharge based on information
showing the refund amount or by applying the appropriate refund formula
to information that the borrower provides or that is otherwise available
to the guaranty agency. For purposes of this section, all unpaid refunds
are considered to be attributed to loan proceeds.
(2) If the information in paragraph (o)(1) of this section is not
available, the guaranty agency uses the following formulas to determine
the amount eligible for discharge:
(i) In the case of a student who fails to attend or whose withdrawal
or termination date is before October 7, 2000 and who completes less
than 60 percent of the loan period, the guaranty agency discharges the
lesser of the institutional charges unearned or the loan amount. The
guaranty agency determines the amount of the institutional charges
unearned by--
(A) Calculating the ratio of the amount of time in the loan period
after the student's last day of attendance to the actual length of the
loan period; and
(B) Multiplying the resulting factor by the institutional charges
assessed the student for the loan period.
(ii) In the case of a student who fails to attend or whose
withdrawal or termination date is on or after October 7, 2000 and who
completes less than 60 percent of the loan period, the guaranty agency
discharges the loan amount unearned. The guaranty agency determines the
loan amount unearned by--
(A) Calculating the ratio of the amount of time remaining in the
loan period after the student's last day of attendance to the actual
length of the loan period; and
(B) Multiplying the resulting factor by the total amount of title IV
grants and loans received by the student, or if unknown, the loan
amount.
(iii) In the case of a student who completes 60 percent or more of
the loan period, the guaranty agency does not discharge any amount
because a student who completes 60 percent or more of the loan period is
not entitled to a refund.
(p) Requests for reimbursement from the Secretary on loans held by
guaranty agencies. The Secretary reimburses the guaranty agency for its
losses on unpaid refund request payments to lenders or borrowers in an
amount that is equal to the amount specified in paragraph (n)(2) of this
section.
(q) Payments received after the guaranty agency's payment of an
unpaid refund request. (1) The holder must promptly return to the sender
any payment on a fully discharged loan, received after the guaranty
agency pays an unpaid refund request unless the sender is required to
pay (as in the case of a tuition recovery fund) in which case, the
payment amount must be forwarded to the Secretary. At the same time that
the holder returns the payment, it must notify the borrower that there
is no obligation to repay a loan fully discharged.
(2) If the holder has returned a payment to the borrower, or the
borrower's representative, with the notice described in paragraph (q)(1)
of this section, and the borrower (or representative) continues to send
payments to the holder, the holder must remit all of those payments to
the Secretary.
[[Page 126]]
(3) If the loan has not been fully discharged, payments must be
applied to the remaining debt.
(r) Payments received after the Secretary's payment of a death,
disability, closed school, false certification, or bankruptcy claim (1)
If the guaranty agency receives any payments from or on behalf of the
borrower on or attributable to a loan that has been discharged in
bankruptcy on which the Secretary previously paid a bankruptcy claim,
the guaranty agency must return 100 percent of these payments to the
sender. The guaranty agency must promptly return, to the sender, any
payment on a cancelled or discharged loan made by the sender and
received after the Secretary pays a closed school or false certification
claim. At the same time that the agency returns the payment, it must
notify the borrower that there is no obligation to repay a loan
discharged on the basis of death, bankruptcy, false certification, or
closing of the school.
(2) If the guaranty agency receives any payments from or on behalf
of the borrower on or attributable to a loan that has been assigned to
the Secretary based on the determination that the borrower is eligible
for a total and permanent disability discharge, the guaranty agency must
promptly return these payments to the sender. At the same time that the
agency returns the payments, it must notify the borrower that there is
no obligation to make payments on the loan after it has been discharged
due to a total and permanent disability, unless the loan is reinstated
in accordance with paragraph (c) of this section, or the Secretary
directs the borrower otherwise.
(3) When the Secretary discharges the loan, the Secretary returns to
the sender any payments received by the Secretary on the loan after the
date the borrower became totally and permanently disabled.
(4) The guaranty agency shall remit to the Secretary all payments
received from a tuition recovery fund, performance bond, or other third
party with respect to a loan on which the Secretary previously paid a
closed school or false certification claim.
(5) If the guaranty agency has returned a payment to the borrower,
or the borrower's representative, with the notice described in
paragraphs (r)(1) or (r)(2) of this section, and the borrower (or
representative) continues to send payments to the guaranty agency, the
agency must remit all of those payments to the Secretary.
(s) Applicable suspension of the repayment period. For purposes of
this section and 11 U.S.C. 523(a)(8)(A) with respect to loans guaranteed
under the FFEL Program, an applicable suspension of the repayment
period--
(1) Includes any period during which the lender does not require the
borrower to make a payment on the loan.
(2) Begins on the date on which the borrower qualifies for the
requested deferment as provided in Sec. 682.210(a)(5) or the lender
grants the requested forbearance;
(3) Closes on the later of the date on which--
(i) The condition for which the requested deferment or forbearance
was received ends; or
(ii) The lender receives notice of the end of the condition for
which the requested deferment or forbearance was received, if the
condition ended earlier than represented by the borrower at the time of
the request and the borrower did not notify timely the lender of the
date on which the condition actually ended;
(4) Includes the period between the end of the borrower's grace
period and the first payment due date established by the lender in the
case of a borrower who entered repayment without the knowledge of the
lender;
(5) Includes the period between the filing of the petition for
relief and the date on which the proceeding is completed or dismissed,
unless payments have been made during that period in amounts sufficient
to meet the amount owed under the repayment schedule in effect when the
petition was filed.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1070g, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)
[57 FR 60323, Dec. 18, 1992]
Editorial Note: For Federal Register citations affecting
Sec. 682.402, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
[[Page 127]]
Effective Date Note: At 81 FR 76079, Nov. 1, 2016, Sec. 682.402,
eff. July 1, 2017, was amended:
A. By revising paragraphs (d)(3);
B. In paragraph (d)(6)(ii)(B)(1) and (2), by removing the words
``sworn statement (which may be combined)'' and adding in their place
the word ``application'';
C. By revising paragraph (d)(6)(ii)(F) introductory text;
D. In paragraph (d)(6)(ii)(F)(5) removing the words ``and sworn
statement'';
E. In paragraph (d)(6)(ii)(G) introductory text, by removing the
words ``request and supporting sworn statement'' and adding, in their
place, the words ``completed application'';
F. By revising paragraph (d)(6)(ii)(H);
G. By redesignating paragraph (d)(6)(ii)(I) as paragraph
(d)(6)(ii)(J);
H. By adding new paragraph (d)(6)(ii)(I) and paragraph
(d)(6)(ii)(K);
I. By revising paragraphs (d)(7)(ii) and (iii) and (d)(8); and
J. In paragraph (e)(6)(iii), by removing the last sentence.
At 82 FR 27621, June 16, 2017, the effective date was delayed
indefinitely. For the convenience of the user, the added and revised
text is set forth as follows:
Sec. 682.402 Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.
* * * * *
(d) * * *
(3) Borrower qualification for discharge. Except as provided in
paragraph (d)(8) of this section, in order to qualify for a discharge of
a loan under paragraph (d) of this section, a borrower must submit a
completed closed school discharge application on a form approved by the
Secretary. By signing the application, the borrower certifies--
* * * * *
(6) * * *
(ii) * * *
(F) If the guaranty agency determines that a borrower identified in
paragraph (d)(6)(ii)(C) or (D) of this section does not qualify for a
discharge, the agency shall notify the borrower in writing of that
determination and the reasons for it, the opportunity for review by the
Secretary, and how to request such a review within 30 days after the
date the agency--
* * * * *
(H) If a borrower described in paragraph (d)(6)(ii)(E) or (F) of
this section fails to submit the completed application within 60 days of
being notified of that option, the lender or guaranty agency shall
resume collection.
(I) Upon resuming collection on any affected loan, the lender or
guaranty agency provides the borrower another discharge application and
an explanation of the requirements and procedures for obtaining a
discharge.
* * * * *
(K)(1) Within 30 days after receiving the borrower's request for
review under paragraph (d)(6)(ii)(F) of this section, the agency shall
forward the borrower's discharge request and all relevant documentation
to the Secretary for review.
(2) The Secretary notifies the agency and the borrower of the
determination upon review. If the Secretary determines that the borrower
is not eligible for a discharge under paragraph (d) of this section,
within 30 days after being so informed, the agency shall take the
actions described in paragraph (d)(6)(ii)(H) or (I) of this section, as
applicable.
(3) If the Secretary determines that the borrower meets the
requirements for a discharge under paragraph (d) of this section, the
agency shall, within 30 days after being so informed, take actions
required under paragraphs (d)(6)(ii)(E) and (d)(6)(ii)(G)(1) of this
section, and the lender shall take the actions described in paragraph
(d)(7)(iv) of this section, as applicable.
* * * * *
(7) * * *
(i) * * *
(ii) If the borrower fails to submit a completed application
described in paragraph (d)(3) of this section within 60 days of being
notified of that option, the lender shall resume collection and shall be
deemed to have exercised forbearance of payment of principal and
interest from the date the lender suspended collection activity. The
lender may capitalize, in accordance with Sec. 682.202(b), any interest
accrued and not paid during that period. Upon resuming collection, the
lender provides the borrower with another discharge application and an
explanation of the requirements and procedures for obtaining a
discharge.
(iii) The lender shall file a closed school claim with the guaranty
agency in accordance with Sec. 682.402(g) no later than 60 days after
the lender receives a completed application described in paragraph
(d)(3) of this section from the borrower, or notification from the
agency that the Secretary approved the borrower's appeal in accordance
with paragraph (d)(6)(ii)(K)(3) of this section.
* * * * *
[[Page 128]]
(8) Discharge without an application. (i) A borrower's obligation to
repay a FFEL Program loan may be discharged without an application from
the borrower if the--
(A) Borrower received a discharge on a loan pursuant to 34 CFR
674.33(g) under the Federal Perkins Loan Program, or 34 CFR 685.214
under the William D. Ford Federal Direct Loan Program; or
(B) Secretary or the guaranty agency, with the Secretary's
permission, determines that the borrower qualifies for a discharge based
on information in the Secretary or guaranty agency's possession.
(ii) With respect to schools that closed on or after November 1,
2013, a borrower's obligation to repay a FFEL Program loan will be
discharged without an application from the borrower if the Secretary or
guaranty agency determines that the borrower did not subsequently re-
enroll in any title IV-eligible institution within a period of three
years after the school closed.
* * * * *
Sec. 682.403 [Reserved]
Sec. 682.404 Federal reinsurance agreement.
(a) General. (1) The Secretary may enter into a reinsurance
agreement with a guaranty agency that has a basic program agreement.
Except as provided in paragraph (b) of this section, under a reinsurance
agreement, the Secretary reimburses the guaranty agency for--
(i) 95 percent of its losses on default claim payments to lenders on
loans for which the first disbursement is made on or after October 1,
1998;
(ii) 98 percent of its losses on default claim payments to lenders
for loans for which the first disbursement is made on or after October
1, 1993, and before October 1, 1998; or
(iii) 100 percent of its losses on default claim payments to
lenders--
(A) For loans for which the first disbursement is made prior to
October 1, 1993;
(B) For loans made under an approved lender-of-last-resort program;
(C) For loans transferred under a plan approved by the Secretary
from an insolvent guaranty agency or a guaranty agency that withdraws
its participation in the FFEL Program;
(D) For loans that meet the definition of exempt claims in paragraph
(a)(2)(iii) of this section;
(E) For a guaranty agency that entered into a basic program
agreement under section 428(b) of the Act after September 30, 1976, or
was not actively carrying on a loan guarantee program covered by a basic
program agreement on October 1, 1976 for five consecutive fiscal years
beginning with the first year of its operation.
(2) For purposes of this section--
(i) Losses means the amount of unpaid principal and accrued interest
the agency paid on a default claim filed by a lender on a reinsured
loan, minus payments made by or on behalf of the borrower after default
but before the Secretary reimburses the agency;
(ii) Default aversion assistance means the activities of a guaranty
agency that are designed to prevent a default by a borrower who is at
least 60 days delinquent and that are directly related to providing
collection assistance to the lender.
(iii) Exempt claims means claims with respect to loans for which it
is determined that the borrower (or student on whose behalf a parent has
borrowed), without the lender's or the institution's knowledge at the
time the loan was made, provided false or erroneous information or took
actions that caused the borrower or the student to be ineligible for all
of a portion of the loan or for interest benefits on the loan.
(3) A guaranty agency's loss on a loan that was outstanding when a
reinsurance agreement was executed is covered by the reinsurance
agreement only if the default on the loan occurs after the effective
date of the agreement.
(4) If a lender has requested default aversion assistance as
described in paragraph (a)(2)(ii) of this section, the agency must, upon
request of the school at which the borrower received the loan, notify
the school of the lender's request. The guaranty agency may not charge
the school or the school's agent for providing this notification and
must accept a blanket request from the school to be notified whenever
any of the school's current or former students are the subject of a
default aversion assistance request. The agency must notify schools
annually of the option to make this blanket request.
[[Page 129]]
(b) Reduction in reinsurance rate. (1) If the total of reinsurance
claims paid by the Secretary to a guaranty agency during any fiscal year
reaches 5 percent of the amount of loans in repayment at the end of the
preceding fiscal year, the Secretary's reinsurance payment on a default
claim subsequently paid by the guaranty agency during that fiscal year
equals--
(i) 90 percent of its losses on default claim payments to lenders on
loans for which the first disbursement is made before October 1, 1993 or
transferred under a plan approved by the Secretary from an insolvent
guaranty agency or a guaranty agency that withdraws its participation in
the FFEL Program;
(ii) 88 percent of its losses on default claim payments to lenders
on loans for which the first disbursement is made on or after October 1,
1993, and before October 1, 1998; or
(iii) 85 percent of its losses on default claim payments to lenders
on loans for which the first disbursement is made on or after October 1,
1998.
(2) If the total of reinsurance claims paid by the Secretary to a
guaranty agency during any fiscal year reaches 9 percent of the amount
of loans in repayment at the end of the preceding fiscal year, the
Secretary's reinsurance payment on a default claim subsequently paid by
the guaranty agency during that fiscal year equals--
(i) 80 percent of its losses on default claim payments to lenders on
loans for which the first disbursement is made before October 1, 1993 or
transferred under a plan approved by the Secretary from an insolvent
guaranty agency or a guaranty agency that withdraws its participation in
the FFEL Program;
(ii) 78 percent of its losses on default claim payments to lenders
on loans for which the first disbursement is made on or after October 1,
1993, and before October 1, 1998; or
(iii) 75 percent of its losses on default claim payments to lenders
on loans for which the first disbursement is made on or after October 1,
1998.
(3) For purposes of this section, the total of reinsurance claims
paid by the Secretary to a guaranty agency during any fiscal year does
not include amounts paid on claims by the guaranty agency--
(i) On loans considered in default under Sec. 682.412(e);
(ii) Under a policy established by the agency that addresses
instances in which, for a non-school originated loan, a lender learns
that the school terminated its teaching activities while a student was
enrolled during the academic period covered by the loan;
(iii) That were filed by lenders at the direction of the Secretary;
or
(iv) On loans made under a guaranty agency's approved lender-of-
last-resort program.
(4) For purposes of this section, amount of loans in repayment
means--
(i) The sum of--
(A) The original principal amount of all loans guaranteed by the
agency; and
(B) The original principal amount of any loans on which the
guarantee was transferred to the agency from another agency;
(ii) Minus the original principal amount of all loans on which--
(A) The loan guarantee was canceled;
(B) The loan guarantee was transferred to another agency;
(C) The borrower has not yet reached the repayment period;
(D) Payment in full has been made by the borrower;
(E) The borrower was in deferment status at the time repayment was
scheduled to begin and remains in deferment status;
(F) Reinsurance coverage has been lost and cannot be regained; and
(G) The agency paid claims, excluding the amount of those claims--
(1) Paid under Sec. 682.412(e);
(2) Paid under a policy established by the agency that addresses the
condition identified in paragraph (b)(3)(ii) of this section; or
(3) Paid at the direction of the Secretary.
(c) Submission of reinsurance rate base data. The guaranty agency
shall submit to the Secretary the quarterly report required by the
Secretary for the previous quarter ending September 30 containing
complete and accurate data in order for the Secretary to calculate the
amount of loans in repayment at the end of the preceding fiscal year.
The Secretary does not pay a reinsurance claim to the guaranty agency
[[Page 130]]
after the date the guarterly report is due until the quaranty agency
submits a complete and accurate report.
(d) Reinsurance fee. (1) Except for loans that were refinanced
pursuant to section 428B(e)(2) and (3) of the Act, and all loans
guaranteed on or after October 1, 1993, a guaranty agency shall pay to
the Secretary during each fiscal year in quarterly installments a
reinsurance fee equal to--
(i) 0.25 percent of the total principal amount of the Stafford, SLS,
and PLUS loans on which guarantees were issued by that agency during
that fiscal year; or
(ii) 0.5 percent of the total principal amount of the Stafford, SLS,
and PLUS loans on which guarantees were issued by that agency during
that fiscal year if the agency's reinsurance claims paid reach the
amount described in paragraph (b)(1) of this section at any time during
that fiscal year.
(2) The agency that is the original guarantor of a loan shall pay
the reinsurance fee to the Secretary even if the guaranty agency
transfers its guarantee obligation on the loan to another guaranty
agency.
(3) The guaranty agency shall pay the reinsurance fee required by
paragraph (d)(1) of this section due the Secretary for each calendar
quarter ending March 31, June 30, September 30, and December 31, within
90 days after the end of the applicable quarter or within 30 days after
receiving written notice from the Secretary that the fees are due,
whichever is earlier.
(e) Initiation or extension of agreements. In deciding whether to
enter into or extend a reinsurance agreement, or, if an agreement has
been terminated, whether to enter into a new agreement, the Secretary
considers the adequacy of--
(1) Efforts by the guaranty agency and the lenders to which it
provides guarantees to collect outstanding loans as required by
Sec. 682.410(b) (6) or (7), and Sec. 682.411;
(2) Efforts by the guaranty agency to make FFEL loans available to
all eligible borrowers; and
(3) Other relevant aspects of the guaranty agency's program
operations.
(f) Application of borrower payments. A payment made to a guaranty
agency by a borrower on a defaulted loan must be applied first to the
collection costs incurred to collect that amount and then to other
incidental charges, such as late charges, then to accrued interest and
then to principal.
(g) Share of borrower payments returned to the Secretary. (1) After
an agency pays a default claim to a holder using assets of the Federal
Fund, the agency must pay to the Secretary the portion of payments
received on those defaulted loans remaining after--
(i) The agency deposits into the Federal Fund the amount of those
payments equal to the applicable complement of the reinsurance
percentage that was in effect at the time the claim was paid; and
(ii) The agency has deducted an amount equal to--
(A) 30 percent of borrower payments received before October 1, 1993;
(B) 27 percent of borrower payments received on or after October 1,
1993, and before October 1, 1998;
(C) 24 percent of borrower payments received on or after October 1,
1998, and before October 1, 2003; and
(D) 23 percent of borrower payments received on or after October 1,
2003.
(E) 16 percent of borrower payments received on or after October 1,
2007.
(2) Unless the Secretary approves otherwise, the guaranty agency
must pay to the Secretary the Secretary's share of borrower payments
within 45 days of its receipt of the payments.
(h) Account maintenance fee. A guaranty agency is paid an account
maintenance fee based on the original principal amount of outstanding
FFEL Program loans insured by the agency. For fiscal years 1999 and
2000, the fee is 0.12 percent of the original principal amount of
outstanding loans. For fiscal years 2000 through 2007, the fee is 0.10
percent of the original principal amount of outstanding loans. After
fiscal year 2007, the fee is 0.06 percent of the original principal
amount of outstanding loans.
(i) Loan processing and issuance fee. A guaranty agency is paid a
loan processing and issuance fee based on the principal amount of FFEL
Program loans originated during a fiscal year
[[Page 131]]
that are insured by the agency. The fee is paid quarterly. No payment is
made for loans for which the disbursement checks have not been cashed or
for which electronic funds transfers have not been completed. For fiscal
years 1999 through 2003, the fee is 0.65 percent of the principal amount
of loans originated. Beginning October 1, 2003, the fee is 0.40 percent.
(j) Default aversion fee--(1) General. If a guaranty agency performs
default aversion activities on a delinquent loan in response to a
lender's request for default aversion assistance on that loan, the
agency receives a default aversion fee. The fee may not be paid more
than once on any loan. The lender's request for assistance must be
submitted to the guaranty agency no earlier than the 60th day and no
later than the 120th day of the borrower's delinquency. A guaranty
agency may not restrict a lender's choice of the date during this period
on which the lender submits a request for default aversion assistance.
(2) Amount of fees transferred. No more frequently than monthly, a
guaranty agency may transfer default aversion fees from the Federal Fund
to its Operating Fund. The amount of the fees that may be transferred is
equal to--
(i) One percent of the unpaid principal and accrued interest owed on
loans that were submitted by lenders to the agency for default aversion
assistance; minus
(ii) One percent of the unpaid principal and accrued interest owed
by borrowers on default claims that--
(A) Were paid by the agency for the same time period for which the
agency transferred default aversion fees from its Federal Fund; and
(B) For which default aversion fees have been received by the
agency.
(3) Calculation of fee. (i) For purposes of calculating the one
percent default aversion fee described in paragraph (j)(2)(i) of this
section, the agency must use the total unpaid principal and accrued
interest owed by the borrower as of the date the default aversion
assistance request is submitted by the lender.
(ii) For purposes of paragraph (j)(2)(ii) of this section, the
agency must use the total unpaid principal and accrued interest owed by
the borrower as of the date the agency paid the default claim.
(4) Prohibition against conflicts. If a guaranty agency contracts
with an outside entity to perform any default aversion activities, that
outside entity may not--
(i) Hold or service the loan; or
(ii) Perform collection activities on the loan in the event of
default within 3 years of the claim payment date.
(k) Other terms. The reinsurance agreement contains other terms and
conditions that the Secretary finds necessary to--
(1) Promote the purposes of the FFEL programs and to protect the
United States from unreasonable risks of loss;
(2) Ensure proper and efficient administration of the loan guarantee
program; and
(3) Ensure that due diligence will be exercised in the collection of
loans.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59
FR 25746, May 17, 1994; 59 FR 61429, Nov. 30, 1994; 60 FR 31411, June
15, 1995; 61 FR 60486, Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 64 FR
58628, Oct. 29, 1999; 71 FR 45707, Aug. 9, 2006; 72 FR 62006, Nov. 1,
2007; 78 FR 65815, Nov. 1, 2013]
Sec. 682.405 Loan rehabilitation agreement.
(a) General. (1) A guaranty agency that has a basic program
agreement must enter into a loan rehabilitation agreement with the
Secretary. The guaranty agency must establish a loan rehabilitation
program for all borrowers with an enforceable promissory note for the
purpose of rehabilitating defaulted loans, except for loans for which a
judgment has been obtained, loans on which a default claim was filed
under Sec. 682.412, and loans on which the borrower has been convicted
of, or has pled nolo contendere or guilty to, a crime involving fraud in
obtaining title IV, HEA program assistance, so that the loan may be
purchased, if practicable, by an eligible lender and removed from
default status.
(2) A loan is considered to be rehabilitated only after--
[[Page 132]]
(i) The borrower has made and the guaranty agency has received nine
of the ten qualifying payments required under a monthly repayment
agreement.
(A) A qualifying payment is--
(1) Made voluntarily;
(2) In the full amount required; and
(3) Received within 20 days of the due date for the payment, and
(B) All nine payments are received within a 10-month period that
begins with the month in which the first required due date falls and
ends with the ninth consecutive calendar month following that month, and
(ii) The loan has been sold to an eligible lender or assigned to the
Secretary.
(3)(i) If a borrower's loan is being collected by administrative
wage garnishment while the borrower is also making monthly payments on
the same loan under a loan rehabilitation agreement, the guaranty agency
must continue collecting the loan by administrative wage garnishment
until the borrower makes five qualifying monthly payments under the
rehabilitation agreement, unless the guaranty agency is otherwise
precluded from doing so under Sec. 682.410(b)(9).
(ii) After the borrower makes the fifth qualifying monthly payment,
the guaranty agency must, unless otherwise directed by the borrower,
suspend the garnishment order issued to the borrower's employer.
(iii) A borrower may only obtain the benefit of a suspension of
administrative wage garnishment while also attempting to rehabilitate a
defaulted loan once.
(4) After the loan has been rehabilitated, the borrower regains all
benefits of the program, including any remaining deferment eligibility
under section 428(b)(1)(M) of the Act, from the date of the
rehabilitation. Effective for any loan that is rehabilitated on or after
August 14, 2008, the borrower cannot rehabilitate the loan again if the
loan returns to default status following the rehabilitation.
(b) Terms of agreement. In the loan rehabilitation agreement, the
guaranty agency agrees to ensure that its loan rehabilitation program
meets the following requirements at all times:
(1) A borrower may request rehabilitation of the borrower's
defaulted loan held by the guaranty agency. In order to be eligible for
rehabilitation of the loan, the borrower must voluntarily make at least
9 of the 10 payments required under a monthly repayment agreement.
(i) Each payment must be--
(A) Made voluntarily;
(B) For the full amount required;
(C) Received within 20 days of the due date for the payment; and
(D) Reasonable and affordable.
(ii) All 9 payments must be received within a 10-month period that
begins with the month in which the first required due date falls and
ends with the ninth consecutive calendar month following that month.
(iii) The guaranty agency initially considers the borrower's
reasonable and affordable payment amount to be an amount equal to 15
percent of the amount by which the borrower's Adjusted Gross Income
(AGI) exceeds 150 percent of the poverty guideline amount applicable to
the borrower's family size and State, divided by 12, except that if this
amount is less than $5, the borrower's monthly rehabilitation payment is
$5.
(iv) The guaranty agency or its agents may calculate the payment
amount based on information provided orally by the borrower or the
borrower's representative and provide the borrower with a rehabilitation
agreement using that amount. The guaranty agency must request
documentation from the borrower to confirm the borrower's AGI and family
size. If the borrower does not provide the guaranty agency or its agents
with any documentation requested by the guaranty agency to calculate or
confirm the reasonable and affordable payment amount, within a
reasonable time deadline set by the guaranty agency or its agent, the
rehabilitation agreement provided is null and void.
(v) The reasonable and affordable payment amount calculated under
this section must not be--
(A) A required minimum loan payment amount (e.g., $50) if the agency
determines that a smaller amount is reasonable and affordable;
[[Page 133]]
(B) A percentage of the borrower's total loan balance; or
(C) Based on other criteria unrelated to the borrower's total
financial circumstances.
(vi) Within 15 business days of its determination of the borrower's
loan rehabilitation payment amount, the guaranty agency must provide the
borrower with a written rehabilitation agreement which includes the
borrower's payment amount calculated under paragraph (b)(1)(iii), a
prominent statement that the borrower may object orally or in writing to
the payment amount, with the method and timeframe for raising such an
objection, and an explanation of any other terms and conditions
applicable to the required series of payments that must be made before
the borrower's account can be considered for repurchase by an eligible
lender or assignment to the Secretary (i.e., rehabilitated). To accept
the agreement, the borrower must sign and return the agreement or accept
the agreement electronically under a process provided by the agency. The
agency may not impose any conditions unrelated to the amount or timing
of the rehabilitation payments in the rehabilitation agreement. The
written rehabilitation agreement must inform the borrower--
(A) Of the effects of having the loans rehabilitated (e.g., removal
of the record of default from the borrower's credit history and return
to normal repayment);
(B) Of the amount of any collection costs to be added to the unpaid
principal of the loan when the loan is sold to an eligible lender or
assigned to the Secretary, which may not exceed 16 percent of the unpaid
principal and accrued interest on the loan at the time of the sale or
assignment; and
(C) That the rehabilitation agreement is null and void if the
borrower fails to provide the documentation required to confirm the
monthly payment calculated under paragraph (b)(1)(iii) of this section.
(vii) If the borrower objects to the monthly payment amount
determined under paragraph (b)(1)(iii) of this section, the guaranty
agency or its agents must recalculate the payment amount based solely on
information provided on a form approved by the Secretary and, if
requested, supporting documentation from the borrower and other sources,
and must consider--
(A) The borrower's, and if applicable, the spouse's current
disposable income, including public assistance payments, and other
income received by the borrower and the spouse, such as welfare
benefits, Social Security benefits, Supplemental Security Income, and
workers' compensation. Spousal income is not considered if the spouse
does not contribute to the borrower's household income;
(B) Family size as defined in Sec. 682.215(a)(3); and
(C) Reasonable and necessary expenses, which include--
(1) Food;
(2) Housing;
(3) Utilities;
(4) Basic communication expenses;
(5) Necessary medical and dental costs;
(6) Necessary insurance costs;
(7) Transportation costs;
(8) Dependent care and other work-related expenses;
(9) Legally required child and spousal support;
(10) Other title IV and non-title IV student loan payments; and
(11) Other expenses approved by the Secretary.
(viii) The guaranty agency must provide the borrower with a new
written rehabilitation agreement confirming the borrower's recalculated
reasonable and affordable payment amount within the timeframe specified
in paragraph (b)(1)(vii) of this section. To accept the agreement, the
borrower must sign and return the agreement or accept the agreement
electronically under a process provided by the agency.
(ix) The agency must include any payment made under
Sec. 682.401(b)(1) in determining whether the 9 out of 10 payments
required under paragraph (b)(1) of this section have been made.
(x) A borrower may request that the monthly payment amount be
adjusted due to a change in the borrower's total financial circumstances
only upon providing the documentation specified in paragraph (b)(1)(vii)
of this section.
[[Page 134]]
(xi) Except as provided in paragraph (c) of this section, during the
rehabilitation period, the guaranty agency must limit contact with the
borrower on the loan being rehabilitated to collection activities that
are required by law or regulation and to communications that support the
rehabilitation.
(2)(i) For the purposes of this section, payment in the full amount
required means payment of an amount that is reasonable and affordable,
based on the borrower's total financial circumstances, as agreed to by
the borrower and the agency. Voluntary payments are those made directly
by the borrower and do not include payments obtained by Federal offset,
garnishment, income or asset execution, or after a judgment has been
entered on a loan. A guaranty agency must attempt to secure a lender to
purchase the loan at the end of the 9- or 10-month payment period as
applicable.
(ii) If the guaranty agency has been unable to sell the loan, the
guaranty agency must assign the loan to the Secretary.
(3) Upon the sale of a rehabilitated loan to an eligible lender or
assignment to the Secretary--
(i) The guaranty agency must, within 45 days of the sale or
assignment--
(A) Provide notice to the prior holder of such sale or assignment,
and
(B) Request that any consumer reporting agency to which the default
was reported remove the record of default from the borrower's credit
history.
(ii) The prior holder of the loan must, within 30 days of receiving
the notification from the guaranty agency, request that any consumer
reporting agency to which the default claim payment or other equivalent
record was reported remove such record from the borrower's credit
history.
(4)(i)An eligible lender purchasing a rehabilitated loan must
establish a repayment schedule that meets the same requirements that are
applicable to other FFEL Program loans of the same loan type as the
rehabilitated loan and must permit the borrower to choose any
statutorily available repayment plan for that loan type. The lender must
treat the first payment made under the nine payments as the first
payment under the applicable maximum repayment term, as defined under
Sec. 682.209(a) or (e). For Consolidation loans, the maximum repayment
term is based on the balance outstanding at the time of loan
rehabilitation.
(ii) [Reserved]
(c) A guaranty agency must make available to the borrower--
(1) During the loan rehabilitation period, information about
repayment plans, including the income-based repayment plan, that may be
available to the borrower upon rehabilitating the defaulted loan and how
the borrower can select a repayment plan after the loan is purchased by
an eligible lender or assigned to the Secretary; and
(2) After the successful completion of the loan rehabilitation
period, financial and economic education materials, including debt
management information.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078-6)
[59 FR 33355, June 28, 1994, as amended at 60 FR 30788, June 12, 1995;
64 FR 18980, Apr. 16, 1999; 64 FR 58965, Nov. 1, 1999; 66 FR 34764, June
29, 2001; 67 FR 67080, Nov. 1, 2002; 68 FR 75429, Dec. 31, 2003; 71 FR
45707, Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 73 FR 63254, Oct. 23,
2008; 74 FR 56000, Oct. 29, 2009; 78 FR 65815, Nov. 1, 2013; 80 FR
67237, Oct. 30, 2015; 81 FR 76080, Nov. 1, 2016]
Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 682.405 was
amended by adding paragraph (b)(4)(ii), eff. July 1, 2017. At 82 FR
27621, June 16, 2017, the effective date was delayed indefinitely. For
the convenience of the user, the added text is set forth as follows:
Sec. 682.405 Loan rehabilitation agreement.
* * * * *
(b)(4) * * *
(ii) The lender must not consider the purchase of a rehabilitated
loan as entry into repayment or resumption of repayment for the purposes
of interest capitalization under Sec. 682.202(b).
* * * * *
[[Page 135]]
Sec. 682.406 Conditions for claim payments from the Federal Fund and
for reinsurance coverage.
(a) A guaranty agency may make a claim payment from the Federal Fund
and receive a reinsurance payment on a loan only if--
(1) The lender exercised due diligence in making, disbursing, and
servicing the loan as prescribed by the rules of the agency;
(2) With respect to the reinsurance payment on the portion of a loan
represented by a single disbursement of loan proceeds--
(i) The check for the disbursement was cashed within 120 days after
disbursement; or
(ii) The proceeds of the disbursement made by electronic funds
transfer or master check have been released from the restricted account
maintained by the school within 120 days after disbursement;
(3) The lender provided an accurate collection history and an
accurate payment history to the guaranty agency with the default claim
filed on the loan showing that the lender exercised due diligence in
collecting the loan through collection efforts meeting the requirements
of Sec. 682.411, including collection efforts against each endorser;
(4) The loan was in default before the agency paid a default claim
filed thereon;
(5) The lender filed a default claim thereon with the guaranty
agency within 90 days of default;
(6) The lender resubmitted a properly documented default claim to
the guaranty agency not later than 60 days from the date the agency had
returned that claim due solely to inadequate documentation, except that
interest accruing beyond the 30th day after the date the guaranty agency
returned the claim is not reinsured unless the lender files a claim for
loss on the loan with the guarantor together with all required
documentation, prior to the 30th day;
(7) The lender satisfied all conditions of guarantee coverage set by
the agency, unless the agency reinstated guarantee coverage on the loan
following the lender's failure to satisfy such a condition pursuant to
written policies and procedures established by the agency;
(8) The agency paid or returned to the lender for additional
documentation a default claim thereon filed by the lender within 90 days
of the date the lender filed the claim or, if applicable, the additional
documentation, except that interest accruing beyond the 60th day after
the date the lender originally filed the claim is not reinsured;
(9) The agency submitted a request for the payment on a form
required by the Secretary no later than 30 days following payment of a
default claim to the lender;
(10) The loan was legally enforceable by the lender when the agency
paid a claim on the loan to the lender;
(11) The agency exercised due diligence in collection of the loan in
accordance with Sec. 682.410(b)(6);
(12) The agency and lender, if applicable, complied with all other
Federal requirements with respect to the loan including--
(i) Payment of origination fees;
(ii) For Consolidation loans disbursed on or after October 1, 1993,
and prior to October 1, 1998, payment on a monthly basis, of an interest
payment rebate fee calculated on an annual basis and equal to 1.05
percent of the unpaid principal and accrued interest on the loan;
(iii) For Consolidation loans for which the application was received
by the lender on or after October 1, 1998 and prior to February 1, 1999,
payment on a monthly basis, of an interest payment rebate fee calculated
on an annual basis and equal to 0.62 percent of the unpaid principal and
accrued interest on the loan;
(iv) For Consolidation loans disbursed on or after February 1, 1999
and prior to July 1, 2010, payment of an interest payment rebate fee in
accordance with paragraph (a)(12)(ii) of this section; and
(v) Compliance with all default aversion assistance requirements in
Sec. 682.404(a)(2)(ii).
(13) The agency assigns the loan to the Secretary, if so directed,
in accordance with the requirements of Sec. 682.409; and
(14) The guaranty agency certifies to the Secretary that diligent
attempts have been made by the lender and the
[[Page 136]]
guaranty agency under Sec. 682.411(h) to locate the borrower through the
use of effective skip-tracing techniques, including contact with the
schools the student attended.
(b) Notwithstanding paragraph (a) of this section, the Secretary may
waive his right to refuse to make or require repayment of a reinsurance
payment if, in the Secretary's judgment, the best interests of the
United States so require. The Secretary's waiver policy for violations
of paragraph (a)(3) or (a)(5) of this section is set forth in appendix D
to this part.
(c) In evaluating a claim for insurance or reinsurance, the issue of
confirmation of subsequent loans under an MPN will not be reviewed and a
claim will not be denied based on the absence of any evidence relating
to confirmation in a particular loan file. However, if a court rules
that a loan is unenforceable solely because of the lack of evidence of a
confirmation process or processes, insurance and reinsurance benefits
must be repaid.
(d) A guaranty agency may not make a claim payment from the Federal
Fund or receive a reinsurance payment on a loan if the agency determines
or is notified by the Secretary that the lender offered or provided an
improper inducement as described in paragraph (5)(i) of the definition
of lender in Sec. 682.200(b).
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59
FR 25746, May 17, 1994; 59 FR 33356, June 28, 1994; 59 FR 61429, Nov.
30, 1994; 61 FR 60486, Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 64 FR
58629, Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999; 65 FR 65620, Nov. 1,
2000; 66 FR 34764, June 29, 2001; 71 FR 45708, Aug. 9, 2006; 72 FR
62006, Nov. 1, 2007; 78 FR 65816, Nov. 1, 2013]
Sec. 682.407 Discharge of student loan indebtedness for survivors of
victims of the September 11, 2001, attacks.
(a) Definition of terms. As used in this section--
(1) Eligible public servant means an individual who--
(i) Served as a police officer, firefighter, other safety or rescue
personnel, or as a member of the Armed Forces; and
(ii)(A) Died due to injuries suffered in the terrorist attacks on
September 11, 2001; or
(B) Became permanently and totally disabled due to injuries suffered
in the terrorist attacks on September 11, 2001.
(2) Eligible victim means an individual who died due to injuries
suffered in the terrorist attacks on September 11, 2001 or became
permanently and totally disabled due to injuries suffered in the
terrorist attacks on September 11, 2001.
(3) Eligible parent means the parent of an eligible victim if--
(i) The parent owes a FFEL PLUS Loan incurred on behalf of an
eligible victim; or
(ii) The parent owes a FFEL Consolidation Loan that was used to
repay a FFEL or Direct Loan PLUS Loan incurred on behalf of an eligible
victim.
(4) Died due to injuries suffered in the terrorist attacks on
September 11, 2001 means the individual was present at the World Trade
Center in New York City, New York, at the Pentagon in Virginia, or at
the Shanksville, Pennsylvania site at the time of or in the immediate
aftermath of the terrorist-related aircraft crashes on September 11,
2001, and the individual died as a direct result of these crashes.
(5) Became permanently and totally disabled due to injuries suffered
in the terrorist attacks on September 11, 2001 means the individual was
present at the World Trade Center in New York City, New York, at the
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the
time of or in the immediate aftermath of the terrorist-related aircraft
crashes on September 11, 2001 and the individual became permanently and
totally disabled as a direct result of these crashes.
(i) An individual is considered permanently and totally disabled
if--
(A) The disability is the result of a physical injury to the
individual that was treated by a medical professional within 72 hours of
the injury having been sustained or within 72 hours of the rescue;
(B) The physical injury that caused the disability is verified by
contemporaneous medical records created by
[[Page 137]]
or at the direction of the medical professional who provided the medical
care; and
(C) The individual is unable to work and earn money due to the
disability and the disability is expected to continue indefinitely or
result in death.
(ii) If the injuries suffered due to the terrorist-related aircraft
crashes did not make the individual permanently and totally disabled at
the time of or in the immediate aftermath of the attacks, the individual
may be considered to be permanently and totally disabled for purposes of
this section if the individual's medical condition has deteriorated to
the extent that the individual is permanently and totally disabled.
(6) Immediate aftermath means, except in the case of an eligible
public servant, the period of time from the aircraft crashes until 12
hours after the crashes. With respect to eligible public servants, the
immediate aftermath includes the period of time from the aircraft
crashes until 96 hours after the crashes.
(7) Present at the World Trade Center in New York City, New York, at
the Pentagon in Virginia, or at the Shanksville, Pennsylvania site means
physically present at the time of the terrorist-related aircraft crashes
or in the immediate aftermath--
(i) In the buildings portions of the buildings that were destroyed
as a result of the terrorist-related aircraft crashes;
(ii) In any area contiguous to the crash site that was sufficiently
close to the site that there was a demonstrable risk of physical harm
resulting from the impact of the aircraft or any subsequent fire,
explosions, or building collapses. Generally, this includes the
immediate area in which the impact occurred, fire occurred, portions of
buildings fell, or debris fell upon and injured persons; or
(iii) On board American Airlines flights 11 or 77 or United Airlines
flights 93 or 175 on September 11, 2001.
(b) September 11 survivors discharge. (1) The obligation of a
borrower and any endorser to make any further payments on an eligible
FFEL Program Loan is discharged if the borrower was, at the time of the
terrorist attacks on September 11, 2001, and currently is, the spouse of
an eligible public servant, unless the eligible public servant has died.
If the eligible public servant has died, the borrower must have been the
spouse of the eligible public servant at the time of the terrorist
attacks on September 11, 2001 and until the date the eligible public
servant died.
(2) The obligation of a borrower to make any further payments
towards the portion of a joint FFEL Consolidation Loan incurred on
behalf of an eligible victim is discharged if the borrower was, at the
time of the terrorist attacks on September 11, 2001, and currently is,
the spouse of an eligible victim, unless the eligible victim has died.
If the eligible victim has died, the borrower must have been the spouse
of the eligible victim at the time of the terrorist attacks on September
11, 2001 and until the date the eligible victim died.
(3) If the borrower is an eligible parent--
(i) The obligation of a borrower and any endorser to make any
further payments on a FFEL PLUS Loan incurred on behalf of an eligible
victim is discharged.
(ii) The obligation of the borrower to make any further payments
towards the portion of a FFEL Consolidation Loan that repaid a FFEL or
Direct Loan PLUS Loan incurred on behalf of an eligible victim is
discharged.
(4) The parent of an eligible public servant may qualify for a
discharge of a FFEL PLUS loan incurred on behalf of the eligible public
servant, or the portion of a FFEL Consolidation Loan that repaid a FFEL
or Direct PLUS Loan incurred on behalf of the eligible public servant,
under the procedures, eligibility criteria, and documentation
requirements described in this section for an eligible parent applying
for a discharge of a loan incurred on behalf of an eligible victim.
(c) Applying for discharge. (1) In accordance with the procedures in
paragraphs (c)(2) through (c)(13) of this section, a discharge may be
granted on--
(i) A FFEL Program Loan owed by the spouse of an eligible public
servant;
(ii) A FFEL PLUS Loan incurred on behalf of an eligible victim;
[[Page 138]]
(iii) The portion of a FFEL Consolidation Loan that repaid a PLUS
loan incurred on behalf of an eligible victim; and
(iv) The portion of a joint Consolidation Loan incurred on behalf of
an eligible victim.
(2) After being notified by the borrower that the borrower claims to
qualify for a discharge under this section, the lender shall suspend
collection activity on the borrower's eligible FFEL Program Loan and
promptly request that the borrower submit a request for discharge on a
form approved by the Secretary.
(3) If the lender determines that the borrower does not qualify for
a discharge under this section, or the lender does not receive the
completed discharge request form from the borrower within 60 days of the
borrower notifying the lender that the borrower claims to qualify for a
discharge, the lender shall resume collection and shall be deemed to
have exercised forbearance of payment of both principal and interest
from the date the lender was notified by the borrower. The lender must
notify the borrower that the application for the discharge has been
denied, provide the basis for the denial, and inform the borrower that
the lender will resume collection on the loan. The lender may
capitalize, in accordance with Sec. 682.202(b), any interest accrued and
not paid during this period.
(4) If the lender determines that the borrower qualifies for a
discharge under this section, the lender shall provide the guaranty
agency with the following documentation--
(i) The loan application, if a separate loan application was
provided to the lender; and
(ii) The completed discharge form, and all accompanying
documentation supporting the discharge request that formed the basis for
the determination that the borrower qualifies for a discharge.
(5) The lender must file a discharge claim within 60 days of the
date on which the lender determines that the borrower qualifies for a
discharge.
(6) The guaranty agency must review a discharge claim under this
section promptly.
(7) If the guaranty agency determines that the borrower does not
qualify for a discharge under this section, the guaranty agency must
return the claim to the lender with an explanation of the basis for the
agency's denial of the claim. Upon receipt of the returned claim, the
lender must notify the borrower that the application for the discharge
has been denied, provide the basis for the denial, and inform the
borrower that the lender will resume collection on the loan. The lender
is deemed to have exercised forbearance of both principal and interest
from the date collection activity was suspended until the next payment
due date. The lender may capitalize, in accordance with Sec. 682.202(b),
any interest accrued and not paid during this period.
(8) If the guaranty agency determines that the borrower qualifies
for a discharge, the guaranty agency pays the lender on an approved
claim the amount of loss required under paragraph (c)(9) of this
section. The guaranty agency shall pay the claim not later than 90 days
after the claim was filed by the lender.
(9) The amount of loss payable on a discharge claim is--
(i) An amount equal to the sum of the remaining principal balance
and interest accrued on the loan, unpaid collection costs incurred by
the lender and applied to the borrower's account within 30 days of the
date those costs were actually incurred, and unpaid interest up to the
date the lender should have filed the claim; or
(ii) In the case of a partial discharge of a Consolidation Loan, the
amount specified in paragraph (c)(9)(i) of this section for the portion
of the Consolidation Loan incurred on behalf of the eligible victim.
(10) The amount payable on an approved claim includes the unpaid
interest that accrues during the following periods:
(i) During the period before the claim is filed, not to exceed 60
days from the date the lender determines that the borrower qualifies for
a discharge under this section.
[[Page 139]]
(ii) During a period not to exceed 30 days following the date the
lender receives a claim returned by the guaranty agency for additional
documentation necessary for the claim to be approved by the guaranty
agency.
(iii) During the period required by the guaranty agency to approve
the claim and to authorize payment or to return the claim to the lender
for additional documentation, not to exceed 90 days.
(11) After being notified that the guaranty agency has paid a
discharge claim, the lender shall notify the borrower that the loan has
been discharged or, in the case of a partial discharge of a
Consolidation Loan, partially discharged. Except in the case of a
partial discharge of a Consolidation Loan, the lender shall return to
the sender any payments received by the lender after the date the
guaranty agency paid the discharge claim.
(12) The Secretary reimburses the guaranty agency for a discharge
claim paid to the lender under this section after the agency pays the
lender. Any failure by the lender to satisfy due diligence requirements
prior to the filing of the claim that would have resulted in the loss of
reinsurance on the loan in the event of default are waived by the
Secretary, provided the loan was held by an eligible loan holder at all
times.
(13) Except in the case of a partial discharge of a Consolidation
Loan, the guaranty agency shall promptly return to the sender any
payment on a discharged loan made by the sender and received after the
Secretary pays a discharge claim. At the same time that the agency
returns the payment it shall notify the borrower that the loan has been
discharged and that there is no further obligation to repay the loan.
(14) A FFEL Program Loan owed by an eligible public servant or an
eligible victim may be discharged under the procedures in Sec. 682.402
for a discharge based on the death or total and permanent disability of
the eligible public servant or eligible victim.
(d) Documentation that an eligible public servant or eligible victim
died due to injuries suffered in the terrorist attacks on September 11,
2001. (1) Documentation that an eligible public servant died due to
injuries suffered in the terrorist attacks on September 11, 2001 must
include--
(i) A certification from an authorized official that the individual
was a member of the Armed Forces, or was employed as a police officer,
firefighter, or other safety or rescue personnel, and was present at the
World Trade Center in New York City, New York, at the Pentagon in
Virginia, or at the Shanksville, Pennsylvania site at the time of the
terrorist-related aircraft crashes or in the immediate aftermath of
these crashes; and
(ii) The inclusion of the individual on an official list of the
individuals who died in the terrorist attacks on September 11, 2001.
(2) If the individual is not included on an official list of the
individuals who died in the terrorist attacks on September 11, 2001, the
borrower must provide--
(i) The certification described in paragraph (d)(1)(i) of this
section;
(ii) An original or certified copy of the individual's death
certificate; and
(iii) A certification from a physician or a medical examiner that
the individual died due to injuries suffered in the terrorist attacks on
September 11, 2001.
(3) If the individual owed a FFEL Program Loan, a Direct Loan, or a
Perkins Loan at the time of the terrorist attacks, documentation that
the individual's loans were discharged by the lender, the Secretary, or
the institution due to death may be substituted for the original or
certified copy of a death certificate.
(4) Documentation that an eligible victim died due to injuries
suffered in the terrorist attacks on September 11, 2001 is the inclusion
of the individual on an official list of the individuals who died in the
terrorist attacks on September 11, 2001.
(5) If the eligible victim is not included on an official list of
the individuals who died in the terrorist attacks on September 11, 2001,
the borrower must provide--
(i) The documentation described in paragraphs (d)(2)(ii) or (d)(3),
and (d)(2)(iii) of this section; and
(ii) A certification signed by the borrower that the eligible victim
was
[[Page 140]]
present at the World Trade Center in New York City, New York, at the
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the
time of the terrorist-related aircraft crashes or in the immediate
aftermath of these crashes.
(6) If the borrower is the spouse of an eligible public servant, and
has been granted a discharge on a Perkins Loan, a Direct Loan, or a FFEL
Program Loan held by another FFEL lender because the eligible public
servant died due to injuries suffered in the terrorist attacks on
September 11, 2001, documentation of the discharge may be used as an
alternative to the documentation in paragraphs (d)(1) through (d)(3) of
this section.
(7) If the borrower is the spouse or parent of an eligible victim,
and has been granted a discharge on a Direct Loan or on a FFEL Program
Loan held by another FFEL lender because the eligible victim died due to
injuries suffered in the terrorist attacks on September 11, 2001,
documentation of the discharge may be used as an alternative to the
documentation in paragraphs (d)(4) and (d)(5) of this section.
(8) Under exceptional circumstances and on a case-by-case basis, the
determination that an eligible public servant or an eligible victim died
due to injuries suffered in the terrorist attacks on September 11, 2001
may be based on other reliable documentation approved by the chief
executive officer of the guaranty agency.
(e) Documentation that an eligible public servant or eligible victim
became permanently and totally disabled due to injuries suffered in the
terrorist attacks on September 11, 2001. (1) Documentation that an
eligible public servant became permanently and totally disabled due to
injuries suffered in the terrorist attacks on September 11, 2001 must
include--
(i) A certification from an authorized official that the individual
was a member of the Armed Forces or was employed as a police officer,
firefighter or other safety or rescue personnel, and was present at the
World Trade Center in New York City, New York, at the Pentagon in
Virginia, or at the Shanksville, Pennsylvania site at the time of the
terrorist-related aircraft crashes or in the immediate aftermath of
these crashes;
(ii) Copies of contemporaneous medical records created by or at the
direction of a medical professional who provided medical care to the
individual within 72 hours of the injury having been sustained or within
24 hours of the rescue; and
(iii) A certification by a physician, who is a doctor of medicine or
osteopathy and legally authorized to practice in a state, that the
individual became permanently and totally disabled due to injuries
suffered in the terrorist attacks on September 11, 2001.
(2) Documentation that an eligible victim became permanently and
totally disabled due to injuries suffered in the terrorist attacks on
September 11, 2001 must include--
(i) The documentation described in paragraphs (e)(1)(ii) and
(e)(1)(iii) of this section; and
(ii) A certification signed by the borrower that the eligible victim
was present at the World Trade Center in New York City, New York, at the
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the
time of the terrorist-related aircraft crashes or in the immediate
aftermath of these crashes.
(3) If the borrower is the spouse of an eligible public servant, and
has been granted a discharge on a Perkins Loan, a Direct Loan, or a FFEL
Program Loan held by another FFEL lender because the eligible public
servant became permanently and totally disabled due to injuries suffered
in the terrorist attacks on September 11, 2001, documentation of the
discharge may be used as an alternative to the documentation in
paragraph (e)(1) of this section.
(4) If the borrower is the spouse or parent of an eligible victim,
and has been granted a discharge on a Direct Loan or on a FFEL Program
Loan held by another FFEL lender because the eligible victim became
permanently and totally disabled due to injuries suffered in the
terrorist attacks on September 11, 2001, documentation of the discharge
may be used as an alternative to the documentation in paragraph (e)(2)
of this section.
[[Page 141]]
(f) Additional information. (1) A lender or guaranty agency may
require the borrower to submit additional information that the lender or
guaranty agency deems necessary to determine the borrower's eligibility
for a discharge under this section.
(2) To establish that the eligible public servant or eligible victim
was present at the World Trade Center in New York City, New York, at the
Pentagon in Virginia, or at the Shanksville, Pennsylvania site, such
additional information may include but is not limited to--
(i) Records of employment;
(ii) Contemporaneous records of a federal, state, city, or local
government agency;
(iii) An affidavit or declaration of the eligible public servant's
or eligible victim's employer; and
(iv) A sworn statement (or an unsworn statement complying with 28
U.S.C. 1746) regarding the presence of the eligible public servant or
eligible victim at the site.
(3) To establish that the disability of the eligible public servant
or eligible victim is due to injuries suffered in the terrorist attacks
on September 11, 2001, such additional information may include but is
not limited to--
(i) Contemporaneous medical records of hospitals, clinics,
physicians, or other licensed medical personnel;
(ii) Registries maintained by federal, state, or local governments;
or
(iii) Records of all continuing medical treatment.
(4) To establish the borrower's relationship to the eligible public
servant or eligible victim, such additional information may include but
is not limited to--
(i) Copies of relevant legal records including court orders, letters
of testamentary or similar documentation;
(ii) Copies of wills, trusts, or other testamentary documents; or
(iii) Copies of approved joint Consolidation Loan applications or
approved FFEL or Direct Loan PLUS loan applications.
(g) Limitations on discharge. (1) Only outstanding Federal SLS
Loans, Federal Stafford Loans, Federal PLUS Loans, and Federal
Consolidation Loans for which amounts were owed on September 11, 2001,
or outstanding Federal Consolidation Loans incurred to pay off loan
amounts that were owed on September 11, 2001, are eligible for discharge
under this section.
(2)(i) Eligibility for a discharge under this section does not
qualify a borrower for a refund of any payments made on the borrower's
loan prior to the date the loan was discharged.
(ii) A borrower may apply for a partial discharge of a joint
Consolidation loan due to death or total and permanent disability under
the procedures in Sec. 682.402(b) or (c). If the borrower is granted a
partial discharge under the procedures in Sec. 682.402(b) or (c) the
borrower may qualify for a refund of payments in accordance with
Sec. 682.402(b)(5) or Sec. 682.402(c)(1)(i).
(iii) A borrower may apply for a discharge of a PLUS loan due to the
death of the student for whom the borrower received the PLUS loan under
the procedures in Sec. 682.402(b). If a borrower is granted a discharge
under the procedures in Sec. 682.402(b), the borrower may qualify for a
refund of payments in accordance with Sec. 682.402(b)(5).
(3) A determination by a lender or a guaranty agency that an
eligible public servant or an eligible victim became permanently and
totally disabled due to injuries suffered in the terrorist attacks on
September 11, 2001 for purposes of this section does not qualify the
eligible public servant or the eligible victim for a discharge based on
a total and permanent disability under Sec. 682.402.
(4) The spouse of an eligible public servant or eligible victim may
not receive a discharge under this section if the eligible public
servant or eligible victim has been identified as a participant or
conspirator in the terrorist-related aircraft crashes on September 11,
2001. An eligible parent may not receive a discharge on a FFEL PLUS Loan
or on a Consolidation Loan that was used to repay a FFEL or Direct Loan
PLUS Loan incurred on behalf of an individual who has been identified as
a participant or conspirator in the terrorist-related aircraft crashes
on September 11, 2001.
[71 FR 78080, Dec. 28, 2006, as amended at 72 FR 55053, Sept. 28, 2007;
78 FR 65816, Nov. 1, 2013]
[[Page 142]]
Sec. 682.408 [Reserved]
Sec. 682.409 Mandatory assignment by guaranty agencies of defaulted
loans to the Secretary.
(a)(1) If the Secretary determines that action is necessary to
protect the Federal fiscal interest, the Secretary directs a guaranty
agency to promptly assign to the Secretary any loans held by the agency
on which the agency has received payment under Sec. 682.402(f),
682.402(k), or 682.404. The collection of unpaid loans owed by Federal
employees by Federal salary offset is, among other things, deemed to be
in the Federal fiscal interest. Unless the Secretary notifies an agency,
in writing, that other loans must be assigned to the Secretary, an
agency must assign any loan that meets all of the following criteria as
of April 15 of each year:
(i) The unpaid principal balance is at least $100.
(ii) For each of the two fiscal years following the fiscal year in
which these regulations are effective, the loan, and any other loans
held by the agency for that borrower, have been held by the agency for
at least four years; for any subsequent fiscal year such loan must have
been held by the agency for at least five years.
(iii) A payment has not been received on the loan in the last year.
(iv) A judgment has not been entered on the loan against the
borrower.
(2) If the agency fails to meet a fiscal year recovery rate standard
under paragraph (a)(2)(ii) of this section for a loan type, and the
Secretary determines that additional assignments are necessary to
protect the Federal fiscal interest, the Secretary may require the
agency to assign in addition to those loans described in paragraph
(a)(1) of this section, loans in amounts needed to satisfy the
requirements of paragraph (a)(2)(iii) or (a)(3)(i) of this section.
(i) Calculation of fiscal year loan type recovery rate. A fiscal
year loan type recovery rate for an agency is determined by dividing the
amount collected on defaulted loans, including collections by Federal
Income Tax Refund Offset, for each loan program (i.e., the Stafford,
PLUS, SLS, and Consolidation loan programs) by the agency for loans of
that program (including payments received by the agency on loans under
Sec. 682.401(b)(1) and Sec. 682.409 and the amounts of any loans
purchased from the guaranty agency by an eligible lender) during the
most recent fiscal year for which data are available by the total of
principal and interest owed to an agency on defaulted loans for each
loan program at the beginning of the same fiscal year, less accounts
permanently assigned to the Secretary through the most recent fiscal
year.
(ii) Fiscal year loan type recovery rates standards. (A) If, in each
of the two fiscal years following the fiscal year in which these
regulations are effective, the fiscal year loan type recovery rate for a
loan program for an agency is below 80 percent of the average recovery
rate of all active guaranty agencies in each of the same two fiscal
years for that program type, and the Secretary determines that
additional assignments are necessary to protect the Federal fiscal
interest, the Secretary may require the agency to make additional
assignments in accordance with paragraph (a)(2)(iii) of this section.
(B) In any subsequent fiscal year the loan type recovery rate
standard for a loan program must be 90 percent of the average recovery
rate of all active guaranty agencies.
(iii) Non-achievement of loan type recovery rate standards.
(A) Unless the Secretary determines under paragraph (a)(2)(iv) of
this section that protection of the Federal fiscal interest requires
that a lesser amount be assigned, upon notice from the Secretary, an
agency with a fiscal year loan type recovery rate described in paragraph
(a)(2)(ii) of this section must promptly assign to the Secretary a
sufficient amount of defaulted loans, in addition to loans to be
assigned in accordance with paragraph (a)(1) of this section, to cause
the fiscal year loan type recovery rate of the agency that fiscal year
to equal or exceed the average rate of all agencies described in
paragraph (a)(2)(ii) of this section when recalculated to exclude from
the denominator of the agency's fiscal year loan type recovery rate the
amount of these additional loans.
[[Page 143]]
(B) The Secretary, in consultation with the guaranty agency, may
require the amount of loans to be assigned under paragraph (a)(2) of
this section to include particular categories of loans that share
characteristics that make the performance of the agency fall below the
appropriate percentage of the loan type recovery rate as described in
paragraph (a)(2)(ii) of this section.
(iv) Calculation of loan type recovery rate standards. The
Secretary, within 30 days after the date for submission of the second
quarterly report from all agencies, makes available to all agencies a
mid-year report, showing the recovery rate for each agency and the
average recovery rate of all active guaranty agencies for each loan
type. In addition, the Secretary, within 120 days after the beginning of
each fiscal year, makes available a final report showing those rates and
the average rate for each loan type for the preceding fiscal year.
(3)(i) Determination that the protection of the Federal fiscal
interest requires assignments. Upon petition by an agency submitted
within 45 days of the notice required by paragraph (a)(2)(iii)(A) of
this section, the Secretary may determine that protection of the Federal
fiscal interest does not require assignment of all loans described in
paragraph (a)(1) of this section or of loans in the full amount
described in paragraph (a)(2)(iii) of this section only after review of
the agency's petition. In making this determination, the Secretary
considers all relevant information available to him (including any
information and documentation obtained by the Secretary in reviews of
the agency or submitted to the Secretary by the agency) as follows:
(A) For each of the two fiscal years following the fiscal year in
which these regulations are effective, the Secretary considers
information presented by an agency with a fiscal year loan type recovery
rate above the average rate of all active agencies to demonstrate that
the protection of the Federal fiscal interest will be served if any
amounts of loans of the loan type required to be assigned to the
Secretary under paragraph (a)(1) of this section are retained by that
agency. For any subsequent fiscal year, the Secretary considers
information presented by an agency with a fiscal year recovery rate 10
percent above the average rate of all active agencies.
(B) The Secretary considers information presented by an agency that
is required to assign loans under paragraph (a)(2) of this section to
demonstrate that the protection of the Federal fiscal interest will be
served if the agency demonstrates that its compliance with
Sec. 682.401(b)(1) and Sec. 682.405 has reduced substantially its fiscal
year loan type recovery rate or rates or if the agency is not required
to assign amounts of loans that would otherwise have to be assigned.
(C) The information provided by an agency pursuant to paragraphs
(a)(3)(i)(A) and (B) of this section may include, but is not limited to
the following:
(1) The fiscal year loan type recovery rate within such school
sectors as the Secretary may designate for the agency, and for all
agencies.
(2) The fiscal year loan type recovery rate for loans for the agency
and for all agencies categorized by age of the loans as the Secretary
may determine.
(3) The performance of the agency, and all agencies, in default
aversion.
(4) The agency's performance on judgment enforcement.
(5) The existence and use of any state or guaranty agency-specific
collection tools.
(6) The agency's level of compliance with Secs. 682.409 and
682.410(b)(6).
(7) Other factors that may affect loan repayment such as State or
regional unemployment and natural disasters.
(ii) Denial of an agency's petition. If the Secretary does not
accept the agency's petition, the Secretary provides, in writing, to the
agency the Secretary's reasons for concluding that the Federal fiscal
interest is best protected by requiring the assignment.
(b)(1) A guaranty agency that assigns a defaulted loan to the
Secretary under this section thereby releases all rights and title to
that loan. The Secretary does not pay the guaranty agency any
compensation for a loan assigned under this section.
(2) The guaranty agency does not share in any amounts received by
the
[[Page 144]]
Secretary on a loan assigned under this section, regardless of the
reinsurance percentage paid on the loan or the agency's previous
collection costs.
(c)(1) A guaranty agency must assign a loan to the Secretary under
this section at the time, in the manner, and with the information and
documentation that the Secretary requires. The agency must submit this
information and documentation in the form (including magnetic media) and
format specified by the Secretary.
(2) The guaranty agency must execute an assignment to the United
States of America of all right, title, and interest in the promissory
note or judgment evidencing a loan assigned under this section. If more
than one loan is made under an MPN, the assignment of the note only
applies to the loan or loans being assigned to the Secretary.
(3) If the agency does not provide the required information and
documentation in the form and format required by the Secretary, the
Secretary may, at his option--
(i) Allow the agency to revise the agency's submission to include
the required information and documentation in the specified form and
format;
(ii) In the case of an improperly formatted computer tape, reformat
the tape and assess the cost of the activity against the agency;
(iii) Reorganize the material submitted and assess the cost of that
activity against the agency; or
(iv) Obtain from other agency records and add to the agency's
submission any information from the original submission, and assess the
cost of that activity against the agency.
(4) For each loan assigned, the agency shall submit to the Secretary
the following documents associated for each loan, assembled in the order
listed below:
(i) The original or a true and exact copy of the promissory note.
(ii) Any documentation of a judgment entered on the loan.
(iii) A written assignment of the loan or judgment, unless this
assignment is affixed to the promissory note.
(iv) The loan application, if a separate application was provided to
the lender.
(v) A payment history for the loan, as described in
Sec. 682.414(a)(1)(ii)(C).
(vi) A collection history for the loan, as described in
Sec. 682.414(a)(1)(ii)(D).
(vii) The record of the lender's disbursement of Stafford and PLUS
loan funds to the school for delivery to the borrower.
(viii) If the MPN or promissory note was signed electronically, the
name and location of the entity in possession of the original electronic
MPN or promissory note.
(5) The agency may submit copies of required documents in lieu of
originals.
(6) The Secretary may accept the assignment of a loan without all of
the documents listed in paragraph (c)(4) of this section. If directed to
do so, the agency must retain these documents for submission to the
Secretary at some future date.
(d)(1) If the Secretary determines that the agency has not submitted
a document or record required by paragraph (c) of this section, and the
Secretary decides to allow the agency an additional opportunity to
submit the omitted document under paragraph (c)(3)(i) of this section,
the Secretary notifies the agency and provides a reasonable period of
time for the agency to submit the omitted record or document.
(2) If the omitted document is not submitted within the time
specified by the Secretary, the Secretary determines whether that
omission impairs the Secretary's ability to collect the loan.
(3) If the Secretary determines that the ability to collect the loan
has been impaired under paragraph (d)(2) of this section, the Secretary
assesses the agency the amount paid to the agency under the reinsurance
agreement and accrued interest at the rate applicable to the borrower
under Sec. 682.410(b)(3).
[[Page 145]]
(4) The Secretary reassigns to the agency that portion of the loan
determined to be unenforceable by the Department.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59
FR 33356, June 28, 1994; 60 FR 30788, June 12, 1995; 64 FR 18980, Apr.
16, 1999; 64 FR 58630, Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999; 72 FR
62006, Nov. 1, 2007; 78 FR 65816, Nov. 1, 2013]
Sec. 682.410 Fiscal, administrative, and enforcement requirements.
(a) Fiscal requirements--(1) Reserve fund assets. A guaranty agency
shall establish and maintain a reserve fund to be used solely for its
activities as a guaranty agency under the FFEL Program (``guaranty
activities''). The guaranty agency shall credit to the reserve fund--
(i) The total amount of insurance premiums and Federal default fees
collected;
(ii) Funds received from a State for the agency's guaranty
activities, including matching funds under section 422(a) of the Act;
(iii) Federal advances obtained under sections 422(a) and (c) of the
Act;
(iv) Federal payments for default, bankruptcy, death, disability,
closed schools, and false certification claims;
(v) Supplemental preclaims assistance payments;
(vi) Transitional support payments received under section 458(a) of
the Act;
(vii) Funds collected by the guaranty agency on FFEL Program loans
on which a claim has been paid;
(viii) Investment earnings on the reserve fund; and
(ix) Other funds received by the guaranty agency from any source for
the agency's guaranty activities.
(2) Uses of reserve fund assets. A guaranty agency may use the
assets of the reserve fund established under paragraph (a)(1) of this
section to pay only--
(i) Insurance claims;
(ii) Costs that are reasonable, as defined under
Sec. 682.410(a)(11)(iii), and that are ordinary and necessary for the
agency to fulfill its responsibilities under the HEA, including costs of
collecting loans, providing default aversion assistance, monitoring
enrollment and repayment status, and carrying out any other guaranty
activities. Those costs must be--
(A) Allocable to the FFEL Program;
(B) Not higher than the agency would incur under established
policies, regulations, and procedures that apply to any comparable non-
Federal activities of the guaranty agency;
(C) Not included as a cost or used to meet cost sharing or matching
requirements of any other federally supported activity, except as
specifically provided by Federal law;
(D) Net of all applicable credits; and
(E) Documented in accordance with applicable legal and accounting
standards;
(iii) The Secretary's equitable share of collections;
(iv) Federal advances and other funds owed to the Secretary;
(v) Reinsurance fees;
(vi) Insurance premiums and Federal default fees related to
cancelled loans;
(vii) Borrower refunds, including those arising out of student or
other borrower claims and defenses;
(viii) (A) The repayment, on or after December 29, 1993, of amounts
credited under paragraphs (a)(1)(ii) or (a)(1)(ix) of this section, if
the agency provides the Secretary 30 days prior notice of the repayment
and demonstrates that--
(1) These amounts were originally received by the agency under
appropriate contemporaneous documentation specifying that receipt was on
a temporary basis only;
(2) The objective for which these amounts were originally received
by the agency has been fully achieved; and
(3) Repayment of these amounts would not cause the agency to fail to
comply with the minimum reserve levels provided by paragraph (a)(10) of
this section, except that the Secretary may, for good cause, provide
written permission for a payment that meets the other requirements of
this paragraph (a)(2)(ix)(A).
(B) The repayment, prior to December 29, 1993, of amounts credited
under paragraphs (a)(1)(ii) or (a)(1)(ix) of this
[[Page 146]]
section, if the agency demonstrates that--
(1) These amounts were originally received by the agency under
appropriate contemporaneous documentation that receipt was on a
temporary basis only; and
(2) The objective for which these amounts were originally received
by the agency has been fully achieved.
(ix) Any other costs or payments ordinary and necessary to perform
functions directly related to the agency's responsibilities under the
HEA and for their proper and efficient administration;
(x) Notwithstanding any other provision of this section, any other
payment that was allowed by law or regulation at the time it was made,
if the agency acted in good faith when it made the payment or the agency
would otherwise be unfairly prejudiced by the nonallowability of the
payment at a later time; and
(xi) Any other amounts authorized or directed by the Secretary.
(3) Accounting basis. Except as approved by the Secretary, a
guaranty agency shall credit the items listed in paragraph (a)(1) of
this section to its reserve fund upon their receipt, without any
deferral for accounting purposes, and shall deduct the items listed in
paragraph (a)(2) of this section from its reserve fund upon their
payment, without any accrual for accounting purposes.
(4) Accounting records. (i) The accounting records of a guaranty
agency must reflect the correct amount of sources and uses of funds
under paragraph (a) of this section.
(ii) A guaranty agency may reverse prior credits to its reserve fund
if--
(A) The agency gives the Secretary prior notice setting forth a
detailed justification for the action;
(B) The Secretary determines that such credits were made erroneously
and in good faith; and
(C) The Secretary determines that the action would not unfairly
prejudice other parties.
(iii) A guaranty agency shall correct any other errors in its
accounting or reporting as soon as practicable after the errors become
known to the agency.
(iv) If a general reconstruction of a guaranty agency's historical
accounting records is necessary to make a change under paragraphs
(a)(4)(ii) and (a)(4)(iii) of this section or any other retroactive
change to its accounting records, the agency may make this
reconstruction only upon prior approval by the Secretary and without any
deduction from its reserve fund for the cost of the reconstruction.
(5) Investments. The guaranty agency shall exercise the level of
care required of a fiduciary charged with the duty of investing the
money of others when it invests the assets of the reserve fund described
in paragraph (a)(1) of this section. It may invest these assets only in
low-risk securities, such as obligations issued or guaranteed by the
United States or a State.
(6) Development of assets. (i) If the guaranty agency uses in a
substantial way for purposes other than the agency's guaranty activities
any funds required to be credited to the reserve fund under paragraph
(a)(1) of this section or any assets derived from the reserve fund to
develop an asset of any kind and does not in good faith allocate a
portion of the cost of developing and maintaining the developed asset to
funds other than the reserve fund, the Secretary may require the agency
to--
(A) Correct this allocation under paragraph (a)(4)(iii) of this
section; or
(B) Correct the recorded ownership of the asset under paragraph
(a)(4)(iii) of this section so that--
(1) If, in a transaction with an unrelated third party, the agency
sells or otherwise derives revenue from uses of the asset that are
unrelated to the agency's guaranty activities, the agency promptly shall
deposit into the reserve fund described in paragraph (a)(1) of this
section a percentage of the sale proceeds or revenue equal to the fair
percentage of the total development cost of the asset paid with the
reserve fund monies or provided by assets derived from the reserve fund;
or
(2) If the agency otherwise converts the asset, in whole or in part,
to a use unrelated to its guaranty activities, the agency promptly shall
deposit into the reserve fund described in paragraph (a)(1) of this
section a fair percentage of the fair market value or, in the case
[[Page 147]]
of a temporary conversion, the rental value of the portion of the asset
employed for the unrelated use.
(ii) If the agency uses funds or assets described in paragraph
(a)(6)(i) of this section in the manner described in that paragraph and
makes a cost and maintenance allocation erroneously and in good faith,
it shall correct the allocation under paragraph (a)(4)(iii) of this
section.
(7) Third-party claims. If the guaranty agency has any claim against
any other party to recover funds or other assets for the reserve fund,
the claim is the property of the United States.
(8) Related-party transactions. All transactions between a guaranty
agency and a related organization or other person that involve funds
required to be credited to the agency's reserve fund under paragraph
(a)(1) of this section or assets derived from the reserve fund must be
on terms that are not less advantageous to the reserve fund than would
have been negotiated on an arm's-length basis by unrelated parties.
(9) Scope of definition. The provisions of this Sec. 682.410(a)
define reserve funds and assets for purposes of sections 422 and 428 of
the Act. These provisions do not, however, affect the Secretary's
authority to use all funds and assets of the agency pursuant to section
428(c)(9)(F)(vi) of the Act.
(10) Minimum reserve fund level. The guaranty agency must maintain a
current minimum reserve level of not less than--
(i) .5 percent of the amount of loans outstanding, for the fiscal
year of the agency that begins in calendar year 1993;
(ii) .7 percent of the amount of loans outstanding, for the fiscal
year of the agency that begins in calendar year 1994;
(iii) .9 percent of the amount of loans outstanding, for the fiscal
year of the agency that begins in calendar year 1995; and
(iv) 1.1 percent of the amount of loans outstanding, for each fiscal
year of the agency that begins on or after January 1, 1996.
(11) Definitions. For purposes of this section--
(i) Reserve fund level means--
(A) The total of reserve fund assets as defined in paragraph (a)(1)
of this section;
(B) Minus the total amount of the reserve fund assets used in
accordance with paragraphs (a)(2) and (a)(3) of this section; and
(ii) Amount of loans outstanding means--
(A) The sum of--
(1) The original principal amount of all loans guaranteed by the
agency; and
(2) The original principal amount of any loans on which the
guarantee was transferred to the agency from another guarantor,
excluding loan guarantees transferred to another agency pursuant to a
plan of the Secretary in response to the insolvency of the agency;
(B) Minus the original principal amount of all loans on which--
(1) The loan guarantee was cancelled;
(2) The loan guarantee was transferred to another agency;
(3) Payment in full has been made by the borrower;
(4) Reinsurance coverage has been lost and cannot be regained; and
(5) The agency paid claims.
(iii) Reasonable cost means a cost that, in its nature and amount,
does not exceed that which would be incurred by a prudent person under
the circumstances prevailing at the time the decision was made to incur
the cost. The burden of proof is upon the guaranty agency, as a
fiduciary under its agreements with the Secretary, to establish that
costs are reasonable. In determining reasonableness of a given cost,
consideration must be given to--
(A) Whether the cost is of a type generally recognized as ordinary
and necessary for the proper and efficient performance and
administration of the guaranty agency's responsibilities under the HEA;
(B) The restraints or requirements imposed by factors such as sound
business practices, arms-length bargaining, Federal, State, and other
laws and regulations, and the terms and conditions of the guaranty
agency's agreements with the Secretary; and
(C) Market prices of comparable goods or services.
[[Page 148]]
(b) Administrative requirements--(1) Independent audits. The
guaranty agency shall arrange for an independent financial and
compliance audit of the agency's FFEL program as follows:
(i) [Reserved]
(ii) A guaranty agency must conduct an audit in accordance with 31
U.S.C. 7502 and 2 CFR part 200, subpart F--Audit Requirements.\2\ If a
nonprofit guaranty agency meets the criteria in 2 CFR part 200, subpart
F--Audit Requirements to have a program specific audit, and chooses that
option, the program-specific audit must meet the following requirements:
---------------------------------------------------------------------------
\2\ None of the other regulations in 2 CFR part 200 apply to
lenders. Only those requirements in subpart F-Audit Requirements, apply
to lenders, as required under the Single Audit Act Amendments of 1996
(31 U.S.C. Chapter 75).
---------------------------------------------------------------------------
(2) Collection charges. Whether or not provided for in the
borrower's promissory note and subject to any limitation on the amount
of those costs in that note, the guaranty agency shall charge a borrower
an amount equal to reasonable costs incurred by the agency in collecting
a loan on which the agency has paid a default or bankruptcy claim. These
costs may include, but are not limited to, all attorney's fees,
collection agency charges, and court costs. Except as provided in
Secs. 682.401(b)(18)(i) and 682.405(b)(1)(iv)(B), the amount charged a
borrower must equal the lesser of--
(i) The amount the same borrower would be charged for the cost of
collection under the formula in 34 CFR 30.60; or
(ii) The amount the same borrower would be charged for the cost of
collection if the loan was held by the U.S. Department of Education.
(3) Interest charged by guaranty agencies. (i) Except as provided in
paragraph (b)(3)(ii) of this section, the guaranty agency shall charge
the borrower interest on the amount owed by the borrower after the
capitalization required under paragraph (b)(4) of this section has
occurred at a rate that is the greater of--
(A) The rate established by the terms of the borrower's original
promissory note; or
(B) In the case of a loan for which a judgment has been obtained,
the rate provided for by State law.
(ii) If the guaranty agency determines that the borrower is eligible
for the interest rate limit of six percent under Sec. 682.202(a)(8), the
interest rate described in paragraph (b)(3)(i) shall not exceed six
percent.
(4) Capitalization of unpaid interest. The guaranty agency shall
capitalize any unpaid interest due the lender from the borrower at the
time the agency pays a default claim to the lender.
(5) Reports to consumer reporting agencies. (i) After the completion
of the procedures in paragraph (b)(5)(ii) of this section, the guaranty
agency shall, after it has paid a default claim, report promptly, but
not less than sixty days after completion of the procedures in paragraph
(b)(6)(ii) of this section, and on a regular basis, to all nationwide
consumer reporting agencies--
(A) The total amount of loans made to the borrower and the remaining
balance of those loans;
(B) The date of default;
(C) Information concerning collection of the loan, including the
repayment status of the loan;
(D) Any changes or corrections in the information reported by the
agency that result from information received after the initial report;
and
(E) The date the loan is fully repaid by or on behalf of the
borrower or discharged by reason of the borrower's death, bankruptcy,
total and permanent disability, or closed school or false certification.
(ii) The guaranty agency, after it pays a default claim on a loan
but before it reports the default to a consumer reporting agency or
assesses collection costs against a borrower, shall, within the
timeframe specified in paragraph (b)(6)(ii) of this section, provide the
borrower with--
(A) Written notice that meets the requirements of paragraph
(b)(5)(vi) of this section regarding the proposed actions;
(B) An opportunity to inspect and copy agency records pertaining to
the loan obligation;
[[Page 149]]
(C) An opportunity for an administrative review of the legal
enforceability or past-due status of the loan obligation; and
(D) An opportunity to enter into a repayment agreement on terms
satisfactory to the agency.
(iii) The procedures set forth in 34 CFR 30.20-30.33 (administrative
offset) satisfy the requirements of paragraph (b)(5)(ii) of this
section.
(iv)(A) In response to a request submitted by a borrower, after the
deadlines established under agency rules, for access to records, an
administrative review, or for an opportunity to enter into a repayment
agreement, the agency shall provide the requested relief but may
continue reporting the debt to consumer reporting agencies until it
determines that the borrower has demonstrated that the loan obligation
is not legally enforceable or that alternative repayment arrangements
satisfactory to the agency have been made with the borrower.
(B) The deadline established by the agency for requesting
administrative review under paragraph (b)(5)(ii)(C) of this section must
allow the borrower at least 60 days from the date the notice described
in paragraph (b)(5)(ii)(A) of this section is sent to request that
review.
(v) An agency may not permit an employee, official, or agent to
conduct the administrative review required under this paragraph if that
individual is--
(A) Employed in an organizational component of the agency or its
agent that is charged with collection of loan obligations; or
(B) Compensated on the basis of collections on loan obligations.
(vi) The notice sent by the agency under paragraph (b)(5)(ii)(A) of
this section must--
(A) Advise the borrower that the agency has paid a default claim
filed by the lender and has taken assignment of the loan;
(B) Identify the lender that made the loan and the school for
attendance at which the loan was made;
(C) State the outstanding principal, accrued interest, and any other
charges then owing on the loan;
(D) Demand that the borrower immediately begin repayment of the
loan;
(E) Explain the rate of interest that will accrue on the loan, that
all costs incurred to collect the loan will be charged to the borrower,
the authority for assessing these costs, and the manner in which the
agency will calculate the amount of these costs;
(F) Notify the borrower that the agency will report the default to
all nationwide consumer reporting agencies to the detriment of the
borrower's credit rating;
(G) Explain the opportunities available to the borrower under agency
rules to request access to the agency's records on the loan, to request
an administrative review of the legal enforceability or past-due status
of the loan, and to reach an agreement on repayment terms satisfactory
to the agency to prevent the agency from reporting the loan as defaulted
to consumer reporting agencies and provide deadlines and method for
requesting this relief;
(H) Unless the agency uses a separate notice to advise the borrower
regarding other proposed enforcement actions, describe specifically any
other enforcement action, such as offset against Federal or state income
tax refunds or wage garnishment that the agency intends to use to
collect the debt, and explain the procedures available to the borrower
prior to those other enforcement actions for access to records, for an
administrative review, or for agreement to alternative repayment terms;
(I) Describe the grounds on which the borrower may object that the
loan obligation as stated in the notice is not a legally enforceable
debt owed by the borrower;
(J) Describe any appeal rights available to the borrower from an
adverse decision on administrative review of the loan obligation;
(K) Describe any right to judicial review of an adverse decision by
the agency regarding the legal enforceability or past-due status of the
loan obligation;
(L) Describe the collection actions that the agency may take in the
future if those presently proposed do not result in repayment of the
loan obligation, including the filing of a lawsuit against the borrower
by the agency and
[[Page 150]]
assignment of the loan to the Secretary for the filing of a lawsuit
against the borrower by the Federal Government; and
(M) Inform the borrower of the options that are available to the
borrower to remove the loan from default, including an explanation of
the fees and conditions associated with each option.
(vii) As part of the guaranty agency's response to a borrower who
appeals an adverse decision resulting from the agency's administrative
review of the loan obligation, the agency must provide the borrower with
information on the availability of the Student Loan Ombudsman's office.
(6) Collection efforts on defaulted loans. (i) A guaranty agency
must engage in reasonable and documented collection activities on a loan
on which it pays a default claim filed by a lender. For a non-paying
borrower, the agency must perform at least one activity every 180 days
to collect the debt, locate the borrower (if necessary), or determine if
the borrower has the means to repay the debt.
(ii) Within 45 days after paying a lender's default claim, the
agency must send a notice to the borrower that contains the information
described in paragraph (b)(5)(ii) of this section. During this time
period, the agency also must notify the borrower, either in the notice
containing the information described in paragraph (b)(5)(ii) of this
section, or in a separate notice, that if he or she does not make
repayment arrangements acceptable to the agency, the agency will
promptly initiate procedures to collect the debt. The agency's
notification to the borrower must state that the agency may
administratively garnish the borrower's wages, file a civil suit to
compel repayment, offset the borrower's State and Federal income tax
refunds and other payments made by the Federal Government to the
borrower, assign the loan to the Secretary in accordance with
Sec. 682.409, and take other lawful collection means to collect the
debt, at the discretion of the agency. The agency's notification must
include a statement that borrowers may have certain legal rights in the
collection of debts, and that borrowers may wish to contact counselors
or lawyers regarding those rights.
(iii) Within a reasonable time after all of the information
described in paragraph (b)(6)(ii) of this section has been sent, the
agency must send at least one notice informing the borrower that the
default has been reported to all nationwide consumer reporting agencies
and that the borrower's credit rating may thereby have been damaged.
(iv) The agency must send a notice informing the borrower of the
options that are available to remove the loan from default, including an
explanation of the fees and conditions associated with each option. This
notice must be sent within a reasonable time after the end of the period
for requesting an administrative review as specified in paragraph
(b)(5)(iv)(B) of this section or, if the borrower has requested an
administrative review, within a reasonable time following the conclusion
of the administrative review.
(v) A guaranty agency must attempt an annual Federal offset against
all eligible borrowers. If an agency initiates proceedings to offset a
borrower's State or Federal income tax refunds and other payments made
by the Federal Government to the borrower, it may not initiate those
proceedings sooner than 60 days after sending the notice described in
paragraph (b)(5)(ii)(A) of this section.
(vi) A guaranty agency must initiate administrative wage garnishment
proceedings against all eligible borrowers, except as provided in
paragraph (b)(6)(vii) of this section, by following the procedures
described in paragraph (b)(9) of this section.
(vii) A guaranty agency may file a civil suit against a borrower to
compel repayment only if the borrower has no wages that can be garnished
under paragraph (b)(9) of this section, or the agency determines that
the borrower has sufficient attachable assets or income that is not
subject to administrative wage garnishment that can be used to repay the
debt, and the use of litigation would be more effective in collection of
the debt.
(7) Special conditions for agency payment of a claim. (i) A guaranty
agency may adopt a policy under which it pays
[[Page 151]]
a claim to a lender on a loan under the condition described in
Sec. 682.404(b)(3)(ii).
(ii) Upon the payment of a claim under a policy described in
paragraph (b)(7)(i) of this section, the guaranty agency shall--
(A) Perform the loan servicing functions required of a lender under
Sec. 682.208, except that the agency is not required to follow the
consumer reporting agency reporting requirements of that section;
(B) Perform the functions of the lender during the repayment period
of the loan, as required under Sec. 682.209;
(C) If the borrower is delinquent in repaying the loan at the time
the agency pays a claim thereon to the lender or becomes delinquent
while the agency holds the loan, exercise due diligence in accordance
with Sec. 682.411 in attempting to collect the loan from the borrower
and any endorser or co-maker; and
(D) After the date of default on the loan, if any, comply with
paragraph (b)(6) of this section with respect to collection activities
on the loan, with the date of default treated as the claim payment date
for purposes of those paragraphs.
(8) Preemption of State law. The provisions of paragraphs (b)(2),
(5), and (6) of this section preempt any State law, including State
statutes, regulations, or rules, that would conflict with or hinder
satisfaction of the requirements of these provisions.
(9) Administrative garnishment. (i) If a guaranty agency decides to
garnish the disposable pay of a borrower who is not making payments on a
loan held by the agency, on which the Secretary has paid a reinsurance
claim, it must do so in accordance with the following procedures:
(A) At least 30 days before the initiation of garnishment
proceedings, the guaranty agency must mail to the borrower's last known
address, a written notice described in paragraph (b)(9)(i)(B) of this
section.
(B) The notice must describe--
(1) The nature and amount of the debt;
(2) The intention of the agency to collect the debt through
deductions from disposable pay;
(3) An explanation of the borrower's rights;
(4) The deadlines by which a borrower must exercise those rights;
and
(5) The consequences of failure to exercise those rights in a timely
manner.
(C) The guaranty agency must offer the borrower an opportunity to
inspect and copy agency records related to the debt.
(D) The guaranty agency must offer the borrower an opportunity to
enter into a written repayment agreement with the agency under terms
agreeable to the agency.
(E)(1) The guaranty agency must offer the borrower an opportunity
for a hearing in accordance with paragraphs (b)(9)(i)(F) through (J) of
this section and other guidance provided by the Secretary, for any
objection regarding the existence, amount, or enforceability of the
debt, and any objection that withholding from the borrower's disposable
pay in the amount or at the rate proposed in the notice would cause
financial hardship to the borrower.
(2) The borrower must request a hearing in writing. At the
borrower's option, the hearing may be oral or written. The time and
location of the hearing is established by the guaranty agency. An oral
hearing may, at the borrower's option, be conducted either in-person or
by telephone conference. The agency notifies the borrower of the process
for arranging the time and location of an oral hearing. All telephonic
charges are the responsibility of the agency. All travel expenses
incurred by the borrower in connection with an in-person oral hearing
are the responsibility of the borrower.
(F)(1) If the borrower submits a written request for a hearing on
the existence, amount, or enforceability of the debt--
(i) The guaranty agency must provide evidence of the existence of
the debt. If the agency provides evidence of the existence of the debt,
the borrower must prove by the preponderance of the evidence that no
debt exists, the debt is not enforceable under applicable law, the
amount the guaranty agency claims the borrower owes is incorrect,
including that any amount of collection costs assessed to the borrower
exceeds the limits established under
[[Page 152]]
Sec. 682.410(b)(2), or the debt is not delinquent; and
(ii) The borrower may raise any of the objections described in
paragraph (b)(9)(i)(F)(1)(i) of this section not raised in the written
request, but must do so before a hearing is completed. For purposes of
this paragraph, a hearing is completed when the record is closed and the
hearing official notifies the parties that no additional evidence or
objections will be accepted.
(2) If the borrower submits a written request for a hearing on an
objection that withholding in the amount or at the rate that the agency
proposed in its notice would cause financial hardship to the borrower
and the borrower's spouse and dependents--
(i) The borrower bears the burden of proving the claim of financial
hardship by a preponderance of the credible evidence by providing
credible documentation that the amount of wages proposed in the notice
would leave the borrower unable to meet basic living expenses of the
borrower, the borrower's spouse, and the borrower's dependents. The
documentation must show the amount of the costs incurred for basic
living expenses and the income available from any source to meet those
expenses;
(ii) The borrower's claim of financial hardship must be evaluated by
comparing the amounts that the borrower proves are being incurred for
basic living expenses against the amounts spent for basic living
expenses by families of the same size as the borrower's. For the
purposes of this section, the standards published by the Internal
Revenue Service under 26 U.S.C. 7122(d)(2) (the ''Collection Financial
Standards'') establish the average amounts spent for basic living
expenses for families of the same size as the borrower's family;
(iii) The amount that the borrower proves is incurred for a type of
basic living expense is considered to be reasonable to the extent that
the amount does not exceed the amount spent for that expense by families
of the same size according to the Collection Financial Standards. If the
borrower claims an amount for any basic living expense that exceeds the
amount in the Collection Financial Standards, the borrower must prove
that the amount claimed is reasonable and necessary;
(iv) If the borrower's objection to the rate or amount proposed in
the notice is upheld in part, the garnishment must be ordered at a
lesser rate or amount, that is determined will allow the borrower to
meet basic living expenses proven to be reasonable and necessary. If
this financial hardship determination is made after a garnishment order
is already in effect, the guaranty agency must notify the borrower's
employer of any change required by the determination in the amount to be
withheld or the rate of withholding under that order; and
(v) A determination by a hearing official that financial hardship
would result from garnishment is effective for a period not longer than
six months after the date of the finding. After this period, the
guaranty agency may require the borrower to submit current information
regarding the borrower's family income and living expenses. If the
borrower fails to submit current information within 30 days of this
request, or the guaranty agency concludes from a review of the available
evidence that garnishment should now begin or the rate or the amount of
an outstanding withholding should be increased, the guaranty agency must
notify the borrower and provide the borrower with an opportunity to
contest the determination and obtain a hearing on the objection under
the procedures in paragraph (b)(9)(i) of this section.
(G) If the borrower's written request for a hearing is received by
the guaranty agency on or before the 30th day following the date of the
notice described in paragraph (b)(9)(i)(B) of this section, the guaranty
agency may not issue a withholding order until the borrower has been
provided the requested hearing and a decision has been rendered. The
guaranty agency must provide a hearing to the borrower in sufficient
time to permit a decision, in accordance with the procedures that the
agency may prescribe, to be rendered within 60 days.
(H) If the borrower's written request for a hearing is received by
the guaranty agency after the 30th day following the date of the notice
described in paragraph (b)(9)(i)(B) of this section,
[[Page 153]]
the guaranty agency must provide a hearing to the borrower in sufficient
time that a decision, in accordance with the procedures that the agency
may prescribe, may be rendered within 60 days, but may not delay
issuance of a withholding order unless the agency determines that the
delay in filing the request was caused by factors over which the
borrower had no control, or the agency receives information that the
agency believes justifies a delay or cancellation of the withholding
order. If a decision is not rendered within 60 days following receipt of
a borrower's written request for a hearing, the guaranty agency must
suspend the order beginning on the 61st day after the hearing request
was received until a hearing is provided and a decision is rendered.
(I) The hearing official appointed by the agency to conduct the
hearing may be any qualified individual, including an administrative law
judge. Under no circumstance may the hearing official be under the
supervision or control of the head of the guaranty agency or of a third-
party servicer or collection contractor employed by the agency. Payment
of compensation by the guaranty agency, third-party servicer, or
collection contractor employed by the agency to the hearing official for
service as a hearing official does not constitute impermissible
supervision or control under this paragraph. The guaranty agency must
ensure that, except as needed to arrange for administrative matters
pertaining to the hearing, including the type of hearing requested by
the borrower, the time, place, and manner of conducting an oral hearing,
and post-hearing matters such as issuance of a hearing decision, all
oral communications between the hearing official and any representative
of the guaranty agency or with the borrower are made within the hearing
of the other party, and that copies of any written communication with
either party are promptly provided to the other party. This paragraph
does not preclude a hearing in the absence of one of the parties if the
borrower is given proper notice of the hearing, both parties have agreed
on the time, place, and manner of the hearing, and one of the parties
fails to attend.
(J) The hearing official must conduct any hearing as an informal
proceeding, require witnesses in an oral hearing to testify under oath
or affirmation, and maintain a summary record of any hearing. The
hearing official must issue a final written decision at the earliest
practicable date, but not later than 60 days after the guaranty agency's
receipt of the borrower's hearing request. However--
(1) The borrower may request an extension of that deadline for a
reasonable period, as determined by the hearing official, for the
purpose of submitting additional evidence or raising a new objection
described in paragraph (b)(9)(i)(F)(1)(ii) of this section; and
(2) The agency may request, and the hearing official must grant, a
reasonable extension of time sufficient to enable the guaranty agency to
evaluate and respond to any such additional evidence or any objections
raised pursuant to paragraph (b)(9)(i)(F)(1)(ii) of this section.
(K) An employer served with a garnishment order from the guaranty
agency with respect to a borrower whose wages are not then subject to a
withholding order of any kind must deduct and pay to the agency from a
borrower's disposable pay an amount that does not exceed the smallest
of--
(1) The amount specified in the guaranty agency order;
(2) The amount permitted by section 488A(a)(1) of the Act, which is
15 percent of the borrower's disposable pay; or
(3) The amount permitted by 15 U.S.C. 1673(a)(2), which is the
amount by which the borrower's disposable pay exceeds 30 times the
minimum wage.
(L) If a borrower's pay is subject to more than one garnishment
order--
(1) Unless other Federal law requires a different priority, the
employer must pay the agency the amount calculated under paragraph
(b)(9)(i)(K) of this section before the employer complies with any later
garnishment orders, except a family support withholding order;
(2) If an employer is withholding from a borrower's pay based on a
garnishment order served on the employer before the guaranty agency's
order, or if a withholding order for family support is served on an
employer at any
[[Page 154]]
time, the employer must comply with the agency's garnishment order by
withholding an amount that is the lesser of--
(i) The amount specified in the guaranty agency order; or
(ii) The amount calculated under paragraph (b)(9)(i)(L)(3) of this
section less the amount or amounts withheld under the garnishment order
or orders that have priority over the agency's order; and
(3) The cumulative withholding for all garnishment orders issued by
guaranty agencies may not exceed, for an individual borrower, the amount
permitted by 15 U.S.C. 1673, which is the lesser of 25 percent of the
borrower's disposable pay or the amount by which the borrower's
disposable pay exceeds 30 times the minimum wage. If a borrower owes
debts to one or more guaranty agencies, each agency may issue a
garnishment order to enforce each of those debts, but no single agency
may order a total amount exceeding 15 percent of the disposable pay of a
borrower to be withheld. The employer must honor these orders as
provided in paragraphs (b)(9)(i)(L)(1) and (2) of this section.
(M) Notwithstanding paragraphs (b)(9)(i)(K) and (L) of this section,
an employer may withhold and pay a greater amount than required under
the order if the borrower gives the employer written consent.
(N) A borrower may, at any time, raise an objection to the amount or
the rate of withholding specified in the guaranty agency's order to the
borrower's employer on the ground of financial hardship. However, the
guaranty agency is not required to consider such an objection and
provide the borrower with a hearing until at least six months after the
agency issued the most recent garnishment order, either one for which
the borrower did not request a hearing or one that was issued after a
hardship-related hearing determination. The agency may provide a hearing
in extraordinary circumstances earlier than six months if the borrower's
request for review shows that the borrower's financial circumstances
have substantially changed after the garnishment notice because of an
event such as injury, divorce, or catastrophic illness.
(O) A garnishment order is effective until the guaranty agency
rescinds the order or the agency has fully recovered the amounts owed by
the borrower, including interest, late fees, and collections costs. If
an employer is unable to honor a garnishment order because the amount
available for garnishment is insufficient to pay any portion of the
amount stated in the order, the employer must notify the agency and
comply with the order when sufficient disposable pay is available. Upon
full recovery of the debt, the agency must send the borrower's employer
notification to stop wage withholding.
(P) The guaranty agency must sue any employer for any amount that
the employer, after receipt of the withholding order provided by the
agency under paragraph (b)(9)(i)(R) of this section, fails to withhold
from wages owed and payable to an employee under the employer's normal
pay and disbursement cycle.
(Q) The guaranty agency may not garnish the wages of a borrower whom
it knows has been involuntarily separated from employment until the
borrower has been reemployed continuously for at least 12 months. The
borrower has the burden of informing the guaranty agency of the
circumstances surrounding the borrower's involuntary separation from
employment.
(R) Unless the guaranty agency receives information that the agency
believes justifies a delay or cancellation of the withholding order, it
must send a withholding order to the employer within 20 days after the
borrower fails to make a timely request for a hearing, or, if a timely
request for a hearing is made by the borrower, within 20 days after a
final decision is made by the agency to proceed with garnishment.
(S) The notice given to the employer under paragraph (b)(9)(i)(R) of
this section must contain only the information as may be necessary for
the employer to comply with the withholding order and to ensure proper
credit for payments received. At a minimum, the notice given to the
employer includes the borrower's name, address, and Social Security
Number, as well as instructions for withholding and information
[[Page 155]]
as to where the employer must send payments.
(T)(1) A guaranty agency may use a third-party servicer or
collection contractor to perform administrative activities associated
with administrative wage garnishment, but may not allow such a party to
conduct required hearings or to determine that a withholding order is to
be issued. Subject to the limitations of paragraphs (b)(9)(i)(T)(2) and
(3) of this section, administrative activities associated with
administrative wage garnishment may include but are not limited to--
(i) Identifying to the agency suitable candidates for wage
garnishment pursuant to agency standards;
(ii) Obtaining employment information for the purposes of
garnishment;
(iii) Sending candidates selected for garnishment by the agency
notices prescribed by the agency;
(iv) Negotiating alternative repayment arrangements with borrowers;
(v) Responding to inquiries from notified borrowers;
(vi) Receiving garnishment payments on behalf of the agency;
(vii) Arranging for the retention of hearing officials and for the
conduct of hearings on behalf of the agency;
(viii) Providing information to borrowers or hearing officials on
the process or conduct of hearings; and
(ix) Sending garnishment orders and other communications to
employers on behalf of the agency.
(2) Only an authorized official of the agency may determine that an
individual withholding order is to be issued. The guarantor must record
the official's determination for each order it issues, including any
order which it causes to be prepared or mailed by a third-party servicer
or collection contractor. The guarantor must evidence the official's
approval, either by including the official's signature on the order or,
if the agency uses a form of withholding order that does not provide for
execution by signature, by retaining in the agency's records the
identity of the approving official, the date of the approval, the amount
or rate of the order, the name and address of the employer to whom the
order was issued, and the debt for which the order was issued.
(3) The withholding order must identify the guaranty agency as the
holder of the debt, as the issuer of the order, and as the sole party
legally authorized to issue the withholding order. If a guaranty agency
uses a third-party servicer or collection contractor to prepare and mail
a withholding order that includes the name of the servicer or contractor
that prepared or mailed the order, the guaranty agency must also ensure
that the order contains no captions or representations that the servicer
or contractor is the party that issued, or was empowered by Federal law
or by the agency to issue, the withholding order.
(U) As specified in section 488A(a)(8) of the Act, the borrower may
seek judicial relief, including punitive damages, if the employer
discharges, refuses to employ, or takes disciplinary action against the
borrower due to the issuance of a withholding order.
(V) A guaranty agency is required to suspend a garnishment order
when the agency receives a borrower's fifth qualifying payment under a
loan rehabilitation agreement with the agency, unless otherwise directed
by the borrower, in accordance with Sec. 682.405(a)(3).
(ii) For purposes of paragraph (b)(9) of this section--
(A) ``Borrower'' includes all endorsers on a loan;
(B) ``Day'' means calendar day;
(C) ``Disposable pay'' means that part of a borrower's compensation
for personal services, whether or not denominated as wages from an
employer, that remains after the deduction of health insurance premiums
and any amounts required by law to be withheld, and includes, but is not
limited to, salary, bonuses, commissions, or vacation pay. ``Amounts
required by law to be withheld'' include amounts for deductions such as
Social Security taxes and withholding taxes, but do not include any
amount withheld under a court order or other withholding order. All
references to an amount of disposable pay refer to disposable pay
calculated for a single week;
(D) ``Employer'' means a person or entity that employs the services
of another and that pays the latter's wages or salary and includes, but
is not limited to, State and local governments,
[[Page 156]]
but does not include an agency of the Federal Government;
(E) ``Financial hardship'' means an inability to meet basic living
expenses for goods and services necessary for the survival of the
borrower and the borrower's spouse and dependents;
(F) ``Garnishment'' means the process of withholding amounts from an
employee's disposable pay and paying those amounts to a creditor in
satisfaction of a withholding order; and
(G) ``Withholding order'' means any order for withholding or
garnishment of pay issued by the guaranty agency and may also be
referred to as ``wage garnishment order'' or ``garnishment order.''
(10) Conflicts of interest. (i) A guaranty agency shall maintain and
enforce written standards of conduct governing the performance of its
employees, officers, directors, trustees, and agents engaged in the
selection, award, and administration of contracts or agreements. The
standards of conduct must, at a minimum, require disclosure of financial
or other interests and must mandate disinterested decision-making. The
standards must provide for appropriate disciplinary actions to be
applied for violations of the standards by employees, officers,
directors, trustees, or agents of the guaranty agency, and must include
provisions to--
(A) Prohibit any employee, officer, director, trustee, or agent from
participating in the selection, award, or decision-making related to the
administration of a contract or agreement supported by the reserve fund
described in paragraph (a) of this section, if that participation would
create a conflict of interest. Such a conflict would arise if the
employee, officer, director, trustee, or agent, or any member of his or
her immediate family, his or her partner, or an organization that
employs or is about to employ any of those parties has a financial or
ownership interest in the organization selected for an award or would
benefit from the decision made in the administration of the contract or
agreement. The prohibitions described in this paragraph do not apply to
employees of a State agency covered by codes of conduct established
under State law;
(B) Ensure sufficient separation of responsibility and authority
between its lender claims processing as a guaranty agency and its
lending or loan servicing activities, or both, within the guaranty
agency or between that agency and one or more affiliates, including
independence in direct reporting requirements and such management and
systems controls as may be necessary to demonstrate, in the independent
audit required under Sec. 682.410(b)(1), that claims filed by another
arm of the guaranty agency or by an affiliate of that agency receive no
more favorable treatment than that accorded the claims filed by a lender
or servicer that is not an affiliate or part of the guaranty agency; and
(C) Prohibit the employees, officers, directors, trustees, and
agents of the guaranty agency, his or her partner, or any member of his
or her immediate family, from soliciting or accepting gratuities,
favors, or anything of monetary value from contractors or parties to
agreements, except that nominal and unsolicited gratuities, favors, or
items may be accepted.
(ii) Guaranty agency restructuring. If the Secretary determines that
action is necessary to protect the Federal fiscal interest because of an
agency's failure to meet the requirements of Sec. 682.410(b)(10)(i), the
Secretary may require the agency to comply with any additional measures
that the Secretary believes are appropriate, including the total
divestiture of the agency's non-FFEL functions and the agency's
interests in any affiliated organization.
(c) Enforcement requirements. A guaranty agency shall take such
measures and establish such controls as are necessary to ensure its
vigorous enforcement of all Federal, State, and guaranty agency
requirements, including agreements, applicable to its loan guarantee
program, including, at a minimum, the following:
(1) Conducting comprehensive biennial on-site program reviews, using
statistically valid techniques to calculate liabilities to the Secretary
that each review indicates may exist, of at least--
(i)(A) Each participating lender whose dollar volume of FFEL loans
[[Page 157]]
held by the lender and guaranteed by the agency in the preceding year--
(1) Equaled or exceeded two percent of the total of all loans
guaranteed by the agency;
(2) Was one of the ten largest lenders whose loans were guaranteed
by the agency; or
(3) Equaled or exceeded $10 million in the most recent fiscal year;
(B) Each lender described in section 435(d)(1)(D) or (J) of the Act
that is located in any State in which the agency is the principal
guarantor, and, at the option of each guaranty agency, the Student Loan
Marketing Association; and
(C) Each school that participated in the guaranty agency's program,
located in a State for which the guaranty agency is the principal
guaranty agency, that has a cohort default rate, as described in subpart
M of 34 CFR part 668, that includes FFEL Program loans, for either of
the 2 immediately preceding fiscal years, as defined in 34 CFR 668.182,
that exceeds 20 percent, unless the school is under a mandate from the
Secretary under subpart M of 34 CFR part 668 to take specific default
reduction measures or if the total dollar amount of loans entering
repayment in each fiscal year on which the cohort default rate of over
20 percent is based does not exceed $100,000; or
(ii) The schools and lenders selected by the agency as an
alternative to the reviews required by paragraphs (c)(1)(i)(A)-(C) of
this section if the Secretary approves the agency's proposed alternative
selection methodology.
(2) Demanding prompt repayment by the responsible parties to
lenders, borrowers, the agency, or the Secretary, as appropriate, of all
funds found in those reviews to be owed by the participants with regard
to loans guaranteed by the agency, whether or not the agency holds the
loans, and monitoring the implementation by participants of corrective
actions, including these repayments, required by the agency as a result
of those reviews.
(3) Referring to the Secretary for further enforcement action any
case in which repayment of funds to the Secretary is not made in full
within 60 days of the date of the agency's written demand to the school,
lender, or other party for payment, together with all supporting
documentation, any correspondence, and any other documentation submitted
by that party regarding the repayment.
(4) Undertaking or arranging with State or local law enforcement
agencies for the prompt and thorough investigation of all allegations
and indications of criminal or other programmatic misconduct by its
program participants, including violations of Federal law or
regulations.
(5) Promptly referring to appropriate State and local regulatory
agencies and to nationally recognized accrediting agencies and
associations for investigation information received by the guaranty
agency that may affect the retention or renewal of the license or
accreditation of a program participant.
(6) Promptly reporting all of the allegations and indications of
misconduct having a substantial basis in fact, and the scope, progress,
and results of the agency's investigations thereof to the Secretary.
(7) Referring appropriate cases to State or local authorities for
criminal prosecution or civil litigation.
(8) Promptly notifying the Secretary of--
(i) Any action it takes affecting the FFEL program eligibility of a
participating lender or title IV eligibility of a school;
(ii) Information it receives regarding an action affecting the FFEL
program eligibility of a participating lender or title IV eligibility of
a school taken by a nationally recognized accrediting agency,
association, or a State licensing agency;
(iii) Any judicial or administrative proceeding relating to the
enforceability of FFEL loans guaranteed by the agency or in which
tuition obligations of a school's students are directly at issue, other
than a proceeding relating to a single borrower or student; and
(iv) Any petition for relief in bankruptcy, application for
receivership, or corporate dissolution proceeding brought by or against
a school or lender participating in its loan guarantee program.
[[Page 158]]
(9) Cooperating with all program reviews, investigations, and audits
conducted by the Secretary relating to the agency's loan guarantee
program.
(10) Taking prompt action to protect the rights of borrowers and the
Federal fiscal interest respecting loans that the agency has guaranteed
when the agency learns that a school that participated in the FFEL
Program or a holder of loans participating in the program is
experiencing problems that threaten the solvency of the school or
holder, including--
(i) Conducting on-site program reviews;
(ii) Providing training and technical assistance, if appropriate;
(iii) Filing a proof of claim with a bankruptcy court for recovery
of any funds due the agency and any refunds due to borrowers on FFEL
loans that it has guaranteed when the agency learns that a school has
filed a bankruptcy petition;
(iv) Promptly notifying the Secretary that the agency has determined
that a school or holder of loans is experiencing potential solvency
problems; and
(v) Promptly notifying the Secretary of the results of any actions
taken by the agency to protect Federal funds involving such a school or
holder.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1080a, 1082, 1087,
1091a, and 1099)
[57 FR 60323, Dec. 18, 1992]
Editorial Note: For Federal Register citations affecting
Sec. 682.410, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 682.410 was
amended in paragraph (b)(4) by adding, after the words ``to the
lender'', the words and punctuation ``, but shall not capitalize any
unpaid interest thereafter'' and by adding paragraph (b)(6)(viii), eff.
July 1, 2017. At 82 FR 27621, June 16, 2017, the effective date was
delayed indefinitely. For the convenience of the user, the added text is
set forth as follows:
Sec. 682.410 Fiscal, administrative, and enforcement requirements.
* * * * *
(b) * * *
(6) * * *
(viii) Upon notification by the Secretary that the borrower has made
a borrower defense claim related to a loan that the borrower intends to
consolidate into the Direct Loan Program for the purpose of seeking
relief in accordance with Sec. 685.212(k), the guaranty agency must
suspend all collection activities on the affected loan for the period
designated by the Secretary.
* * * * *
Sec. 682.411 Lender due diligence in collecting guaranty agency loans.
(a) General. In the event of delinquency on an FFEL Program loan,
the lender must engage in at least the collection efforts described in
paragraphs (c) through (n) of this section, except that in the case of a
loan made to a borrower who is incarcerated, residing outside a State,
Mexico, or Canada, or whose telephone number is unknown, the lender may
send a forceful collection letter instead of each telephone effort
required by this section.
(b) Delinquency. (1) For purposes of this section, delinquency on a
loan begins on the first day after the due date of the first missed
payment that is not later made. The due date of the first payment is
established by the lender but must occur by the deadlines specified in
Sec. 682.209(a) or, if the lender first learns after the fact that the
borrower has entered the repayment period, no later than 75 days after
the day the lender so learns, except as provided in
Sec. 682.209(a)(2)(v) and (a)(3)(ii)(E). If a payment is made late, the
first day of delinquency is the day after the due date of the next
missed payment that is not later made. A payment that is within five
dollars of the amount normally required to advance the due date may
nevertheless advance the due date if the lender's procedures allow for
that advancement.
(2) At no point during the periods specified in paragraphs (c), (d),
and (e) of this section may the lender permit the occurrence of a gap in
collection activity, as defined in paragraph (j) of this section, of
more than 45 days (60 days in the case of a transfer).
(3) As part of one of the collection activities provided for in this
section, the lender must provide the borrower with
[[Page 159]]
information on the availability of the Student Loan Ombudsman's office.
(c) 1-15 days delinquent. Except in the case in which a loan is
brought into this period by a payment on the loan, expiration of an
authorized deferment or forbearance period, or the lender's receipt from
the drawee of a dishonored check submitted as a payment on the loan, the
lender during this period must send at least one written notice or
collection letter to the borrower informing the borrower of the
delinquency and urging the borrower to make payments sufficient to
eliminate the delinquency. The notice or collection letter sent during
this period must include, at a minimum, a lender or servicer contact, a
telephone number, and a prominent statement informing the borrower that
assistance may be available if he or she is experiencing difficulty in
making a scheduled repayment.
(d) 16-180 days delinquent (16-240 days delinquent for a loan
repayable in installments less frequently than monthly). (1) Unless
exempted under paragraph (d)(4) of this section, during this period the
lender must engage in at least four diligent efforts to contact the
borrower by telephone and send at least four collection letters urging
the borrower to make the required payments on the loan. At least one of
the diligent efforts to contact the borrower by telephone must occur on
or before, and another one must occur after, the 90th day of
delinquency. Collection letters sent during this period must include, at
a minimum, information for the borrower regarding deferment,
forbearance, income-sensitive repayment, income-based repayment and loan
consolidation, and other available options to avoid default.
(2) At least two of the collection letters required under paragraph
(d)(1) of this section must warn the borrower that, if the loan is not
paid, the lender will assign the loan to the guaranty agency that, in
turn, will report the default to each nationwide consumer reporting
agency, and that the agency may institute proceedings to offset the
borrower's State and Federal income tax refunds and other payments made
by the Federal Government to the borrower or to garnish the borrower's
wages, or to assign the loan to the Federal Government for litigation
against the borrower.
(3) Following the lender's receipt of a payment on the loan or a
correct address for the borrower, the lender's receipt from the drawee
of a dishonored check received as a payment on the loan, the lender's
receipt of a correct telephone number for the borrower, or the
expiration of an authorized deferment or forbearance period, the lender
is required to engage in only--
(i) Two diligent efforts to contact the borrower by telephone during
this period, if the loan is less than 91 days delinquent (121 days
delinquent for a loan repayable in installments less frequently than
monthly) upon receipt of the payment, correct address, correct telephone
number, or returned check, or expiration of the deferment or
forbearance; or
(ii) One diligent effort to contact the borrower by telephone during
this period if the loan is 91-120 days delinquent (121-180 days
delinquent for a loan repayable in installments less frequently than
monthly) upon receipt of the payment, correct address, correct telephone
number, or returned check, or expiration of the deferment or
forbearance.
(4) A lender need not attempt to contact by telephone any borrower
who is more than 120 days delinquent (180 days delinquent for a loan
repayable in installments less frequent than monthly) following the
lender's receipt of--
(i) A payment on the loan;
(ii) A correct address or correct telephone number for the borrower;
(iii) A dishonored check received from the drawee as a payment on
the loan; or
(iv) The expiration of an authorized deferment or forbearance.
(e) 181-270 days delinquent (241-330 days delinquent for a loan
repayable in installments less frequently than monthly). During this
period the lender must engage in efforts to urge the borrower to make
the required payments on the loan. These efforts must, at a minimum,
provide information to the borrower regarding options to avoid default
and the consequences of defaulting on the loan.
[[Page 160]]
(f) Final demand. On or after the 241st day of delinquency (the
301st day for loans payable in less frequent installments than monthly)
the lender must send a final demand letter to the borrower requiring
repayment of the loan in full and notifying the borrower that a default
will be reported to each nationwide consumer reporting agency. The
lender must allow the borrower at least 30 days after the date the
letter is mailed to respond to the final demand letter and to bring the
loan out of default before filing a default claim on the loan.
(g) Collection procedures when borrower's telephone number is not
available. Upon completion of a diligent but unsuccessful effort to
ascertain the correct telephone number of a borrower as required by
paragraph (m) of this section, the lender is excused from any further
efforts to contact the borrower by telephone, unless the borrower's
number is obtained before the 211th day of delinquency (the 271st day
for loans repayable in installments less frequently than monthly).
(h) Skip-tracing. (1) Unless the letter specified under paragraph
(f) of this section has already been sent, within 10 days of its receipt
of information indicating that it does not know the borrower's current
address, the lender must begin to diligently attempt to locate the
borrower through the use of effective commercial skip-tracing
techniques. These efforts must include, but are not limited to, sending
a letter to or making a diligent effort to contact each endorser,
relative, reference, individual, and entity, identified in the
borrower's loan file, including the schools the student attended. For
this purpose, a lender's contact with a school official who might
reasonably be expected to know the borrower's address may be with
someone other than the financial aid administrator, and may be in
writing or by phone calls. These efforts must be completed by the date
of default with no gap of more than 45 days between attempts to contact
those individuals or entities.
(2) Upon receipt of information indicating that it does not know the
borrower's current address, the lender must discontinue the collection
efforts described in paragraphs (c) through (f) of this section.
(3) If the lender is unable to ascertain the borrower's current
address despite its performance of the activities described in paragraph
(h)(1) of this section, the lender is excused thereafter from
performance of the collection activities described in paragraphs (c)
through (f) and (l)(1) through (l)(3) and (l)(5) of this section unless
it receives communication indicating the borrower's address before the
241st day of delinquency (the 301st day for loans payable in less
frequent installments than monthly).
(4) The activities specified by paragraph (m)(1)(i) or (ii) of this
section (with references to the ``borrower'' understood to mean
endorser, reference, relative, individual, or entity as appropriate)
meet the requirement that the lender make a diligent effort to contact
each individual identified in the borrower's loan file.
(i) Default aversion assistance. Not earlier than the 60th day and
no later than the 120th day of delinquency, a lender must request
default aversion assistance from the guaranty agency that guarantees the
loan.
(j) Gap in collection activity. For purposes of this section, the
term gap in collection activity means, with respect to a loan, any
period--
(1) Beginning on the date that is the day after--
(i) The due date of a payment unless the lender does not know the
borrower's address on that date;
(ii) The day on which the lender receives a payment on a loan that
remains delinquent notwithstanding the payment;
(iii) The day on which the lender receives the correct address for a
delinquent borrower;
(iv) The day on which the lender completes a collection activity;
(v) The day on which the lender receives a dishonored check
submitted as a payment on the loan;
(vi) The expiration of an authorized deferment or forbearance period
on a delinquent loan; or
(vii) The day the lender receives information indicating it does not
know the borrower's current address; and
[[Page 161]]
(2) Ending on the date of the earliest of--
(i) The day on which the lender receives the first subsequent
payment or completed deferment request or forbearance agreement;
(ii) The day on which the lender begins the first subsequent
collection activity;
(iii) The day on which the lender receives written communication
from the borrower relating to his or her account; or
(iv) Default.
(k) Transfer. For purposes of this section, the term transfer with
respect to a loan means any action, including, but not limited to, the
sale of the loan, that results in a change in the system used to monitor
or conduct collection activity on a loan from one system to another.
(l) Collection activity. For purposes of this section, the term
collection activity with respect to a loan means--
(1) Mailing or otherwise transmitting to the borrower at an address
that the lender reasonably believes to be the borrower's current address
a collection letter or final demand letter that satisfies the timing and
content requirements of paragraph (c), (d), (e), or (f) of this section;
(2) Making an attempt to contact the borrower by telephone to urge
the borrower to begin or resume repayment;
(3) Conducting skip-tracing efforts, in accordance with paragraph
(h)(1) or (m)(1)(iii) of this section, to locate a borrower whose
correct address or telephone number is unknown to the lender;
(4) Mailing or otherwise transmitting to the guaranty agency a
request for default aversion assistance available from the agency on the
loan at the time the request is transmitted; or
(5) Any telephone discussion or personal contact with the borrower
so long as the borrower is apprised of the account's past-due status.
(m) Diligent effort for telephone contact. (1) For purposes of this
section, the term diligent effort with respect to telephone contact
means--
(i) A successful effort to contact the borrower by telephone;
(ii) At least two unsuccessful attempts to contact the borrower by
telephone at a number that the lender reasonably believes to be the
borrower's correct telephone number; or
(iii) An unsuccessful effort to ascertain the correct telephone
number of a borrower, including, but not limited to, a directory
assistance inquiry as to the borrower's telephone number, and sending a
letter to or making a diligent effort to contact each reference,
relative, and individual identified in the most recent loan application
or most recent school certification for that borrower held by the
lender. The lender may contact a school official other than the
financial aid administrator who reasonably may be expected to know the
borrower's address or telephone number.
(2) If the lender is unable to ascertain the borrower's correct
telephone number despite its performance of the activities described in
paragraph (m)(1)(iii) of this section, the lender is excused thereafter
from attempting to contact the borrower by telephone unless it receives
a communication indicating the borrower's current telephone number
before the 211th day of delinquency (the 271st day for loans repayable
in installments less frequently than monthly).
(3) The activities specified by paragraph (m)(1) (i) or (ii) of this
section (with references to ``the borrower'' understood to mean
endorser, reference, relative, or individual as appropriate), meet the
requirement that the lender make a diligent effort to contact each
endorser or each reference, relative, or individual identified on the
borrower's most recent loan application or most recent school
certification.
(n) Due diligence for endorsers. (1) Before filing a default claim
on a loan with an endorser, the lender must--
(i) Make a diligent effort to contact the endorser by telephone; and
(ii) Send the endorser on the loan two letters advising the endorser
of the delinquent status of the loan and urging the endorser to make the
required payments on the loan with at least one letter containing the
information described in paragraph (d)(2) of this section (with
references to ``the borrower'' understood to mean the endorser).
(2) On or after the 241st day of delinquency (the 301st day for
loans payable
[[Page 162]]
in less frequent installments than monthly) the lender must send a final
demand letter to the endorser requiring repayment of the loan in full
and notifying the endorser that a default will be reported to each
nationwide consumer reporting agency. The lender must allow the endorser
at least 30 days after the date the letter is mailed to respond to the
final demand letter and to bring the loan out of default before filing a
default claim on the loan.
(3) Unless the letter specified under paragraph (n)(2) of this
section has already been sent, upon receipt of information indicating
that it does not know the endorser's current address or telephone
number, the lender must diligently attempt to locate the endorser
through the use of effective commercial skip-tracing techniques. This
effort must include an inquiry to directory assistance.
(o) Preemption. The provisions of this section--
(1) Preempt any State law, including State statutes, regulations, or
rules, that would conflict with or hinder satisfaction of the
requirements or frustrate the purposes of this section; and
(2) Do not preempt provisions of the Fair Credit Reporting Act that
provide relief to a borrower while the lender determines the legal
enforceability of a loan when the lender receives a valid identity theft
report or notification from a consumer reporting agency that information
furnished is a result of an alleged identity theft as defined in
Sec. 682.402(e)(14).
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1080a, 1082, 1087)
[64 FR 58630, Oct. 29, 1999, as amended at 64 FR 58965, Nov. 1, 1999; 72
FR 62006, Nov. 1, 2007; 73 FR 63254, Oct. 23, 2008; 78 FR 65820, Nov. 1,
2013]
Sec. 682.412 Consequences of the failure of a borrower or student to
establish eligibility.
(a) The lender shall immediately send to the borrower a final demand
letter meeting the requirements of Sec. 682.411(f) when it learns and
can substantiate that the borrower or the student on whose behalf a
parent has borrowed, without the lender or school's knowledge at the
time the loan was made, provided false or erroneous information or took
actions that caused the student or borrower--
(1) To be ineligible for all or a portion of a loan made under this
part;
(2) To receive a Stafford loan subject to payment of Federal
interest benefits for which he or she was ineligible; or
(3) To receive loan proceeds for a period of enrollment from which
he or she has withdrawn or been expelled prior to the first day of
classes or during which he or she failed to attend school and has not
paid those funds to the school or repaid them to the lender.
(b) The lender shall neither bill the Secretary for nor be entitled
to interest benefits on a loan after it learns that one of the
conditions described in paragraph (a) of this section exists with
respect to the loan.
(c) In the final demand letter transmitted under paragraph (a) of
this section, the lender shall demand that within 30 days from the date
the letter is mailed the borrower repay in full any principal amount for
which the borrower is ineligible and any accrued interest, including
interest and all special allowance paid by the Secretary.
(d) If the borrower repays the amounts described in paragraph (c) of
this section within the 30-day period, the lender shall--
(1) On its next quarterly interest billing submitted under
Sec. 682.305, refund to the Secretary the interest benefits and special
allowance repaid by the borrower and all other interest benefits and
special allowance previously paid by the Secretary on the ineligible
portion of the loan; and
(2) Treat that payment of the principal amount of the ineligible
portion of the loan as a prepayment of principal.
(e) If a borrower fails to comply with the terms of a final demand
letter described in paragraph (a) of this section, the lender shall
treat the entire loan as in default, and--
(1) With its next quarterly interest billing submitted under
Sec. 682.305, refund to the Secretary the amount of the interest
benefits received from the Secretary on the ineligible portion of the
[[Page 163]]
loan, whether or not repaid by the borrower; and
(2) Within the time specified in Sec. 682.406(a)(5), file a default
claim thereon with the guaranty agency for the entire unpaid balance of
principal and accrued interest.
(Approved by the Office of Management and Budget under control number
1840-0538)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 60
FR 61757, Dec. 1, 1995; 64 FR 58632, Oct. 29, 1999; 78 FR 65820, Nov. 1,
2013]
Sec. 682.413 Remedial actions.
(a)(1) The Secretary requires a lender and its third-party servicer
administering any aspect of the FFEL programs under a contract with the
lender to repay interest benefits and special allowance or other
compensation received on a loan guaranteed by a guaranty agency,
pursuant to paragraph (a)(2) of this section--
(i) For any period beginning on the date of a failure by the lender
or servicer, with respect to the loan, to comply with any of the
requirements set forth in Sec. 682.406(a)(1)-(a)(6), (a)(9), and
(a)(12);
(ii) For any period beginning on the date of a failure by the lender
or servicer, with respect to the loan, to meet a condition of guarantee
coverage established by the guaranty agency, to the date, if any, on
which the guaranty agency reinstated the guarantee coverage pursuant to
policies and procedures established by the agency;
(iii) For any period in which the lender or servicer, with respect
to the loan, violates the requirements of subpart C of this part; and
(iv) For any period beginning on the day after the Secretary's
obligation to pay special allowance on the loan terminates under
Sec. 682.302(d).
(2) For purposes of this section, a lender and any applicable third-
party servicer shall be considered jointly and severally liable for the
repayment of any interest benefits and special allowance paid as a
result of a violation of applicable requirements by the servicer in
administering the lender's FFEL programs.
(3) For purposes of paragraph (a)(2) of this section, the relevant
third-party servicer shall repay any outstanding liabilities under
paragraph (a)(2) of this section only if--
(i) The Secretary has determined that the servicer is jointly and
severally liable for the liabilities; and
(ii) (A) The lender has not repaid in full the amount of the
liability within 30 days from the date the lender receives notice from
the Secretary of the liability;
(B) The lender has not made other satisfactory arrangements to pay
the amount of the liability within 30 days from the date the lender
receives notice from the Secretary of the liability; or
(C) The Secretary is unable to collect the liability from the lender
by offsetting the lender's bill to the Secretary for interest benefits
or special allowance, if--
(1) The bill is submitted after the 30 day period specified in
paragraph (a)(3)(ii)(A) of this section has passed; and
(2) The lender has not paid, or made satisfactory arrangements to
pay, the liability.
(b)(1) The Secretary requires a guaranty agency to repay reinsurance
payments received on a loan if the lender, third-party servicer, if
applicable, or the agency failed to meet the requirements of
Sec. 682.406(a).
(2) The Secretary may require a guaranty agency to repay reinsurance
payments received on a loan or to assign FFEL loans to the Department if
the agency fails to meet the requirements of Sec. 682.410.
(c)(1) In addition to requiring repayment of reinsurance payments
pursuant to paragraph (b) of this section, the Secretary may take one or
more of the following remedial actions against a guaranty agency or
third-party servicer administering any aspect of the FFEL programs under
a contract with the guaranty agency, that makes an incomplete or
incorrect statement in connection with any agreement entered into under
this part or violates any applicable Federal requirement:
(i) Require the agency to return payments made by the Secretary to
the agency.
[[Page 164]]
(ii) Withhold payments to the agency.
(iii) Limit the terms and conditions of the agency's continued
participation in the FFEL programs.
(iv) Suspend or terminate agreements with the agency.
(v) Impose a fine on the agency or servicer. For purposes of
assessing a fine on a third-party servicer, a repeated mechanical
systemic unintentional error shall be counted as one violation, unless
the servicer has been cited for a similar violation previously and had
failed to make the appropriate corrections to the system.
(vi) Require repayment from the agency and servicer pursuant to
paragraph (c)(2) of this section, of interest, special allowance, and
reinsurance paid on Consolidation loan amounts attributed to
Consolidation loans for which the required lender verification
certification is not available.
(vii) Require repayment from the agency or servicer, pursuant to
paragraph (c)(2) of this section, of any related payments that the
Secretary became obligated to make to others as a result of an
incomplete or incorrect statement or a violation of an applicable
Federal requirement.
(2) For purposes of this section, a guaranty agency and any
applicable third-party servicer shall be considered jointly and
severally liable for the repayment of any interest benefits, special
allowance, reinsurance paid, or other compensation on Consolidation loan
amounts attributed to Consolidation loans as specified in
Sec. 682.413(c)(1)(vi) as a result of a violation by the servicer
administering any aspect of the FFEL programs under a contract with that
guaranty agency.
(3) For purposes of paragraph (c)(2) of this section, the relevant
third-party servicer shall repay any outstanding liabilities under
paragraph (c)(2) of this section only if--
(i) The Secretary has determined that the servicer is jointly and
severally liable for the liabilities; and
(ii) (A) The guaranty agency has not repaid in full the amount of
the liability within 30 days from the date the guaranty agency receives
notice from the Secretary of the liability;
(B) The guaranty agency has not made other satisfactory arrangements
to pay the amount of the liability within 30 days from the date the
guaranty agency receives notice from the Secretary of the liability; or
(C) The Secretary is unable to collect the liability from the
guaranty agency by offsetting the guaranty agency's first reinsurance
claim to the Secretary, if--
(1) The claim is submitted after the 30-day period specified in
paragraph (c)(3)(ii)(A) of this section has passed; and
(2) The guaranty agency has not paid, or made satisfactory
arrangements to pay, the liability.
(d)(1) The Secretary follows the procedures described in 34 CFR part
668, subpart G, applicable to fine proceedings against schools, in
imposing a fine against a lender, guaranty agency, or third-party
servicer. References to ``the institution'' in those regulations shall
be understood to mean the lender, guaranty agency, or third-party
servicer, as applicable, for this purpose.
(2) The Secretary also follows the provisions of section 432(g) of
the Act in imposing a fine against a guaranty agency or lender.
(e)(1)(i) The Secretary's decision to require repayment of funds,
withhold funds, or to limit or suspend a lender, guaranty agency, or
third party servicer from participation in the FFEL Program or to
terminate a lender or third party from participation in the FFEL Program
does not become final until the Secretary provides the lender, agency,
or servicer with written notice of the intended action and an
opportunity to be heard. The hearing is at a time and in a manner the
Secretary determines to be appropriate to the resolution of the issues
on which the lender, agency, or servicer requests the hearing.
(ii) The Secretary's decision to terminate a guaranty agency's
participation in the FFEL Program after September 24, 1998 does not
become final until the Secretary provides the agency with written notice
of the intended action and provides an opportunity for a hearing on the
record.
(2)(i) The Secretary may withhold payments from an agency or suspend
[[Page 165]]
an agreement with an agency prior to giving notice and an opportunity to
be heard if the Secretary finds that emergency action is necessary to
prevent substantial harm to Federal interests.
(ii) The Secretary follows the notice and show cause procedures
described in Sec. 682.704 applicable to emergency actions against
lenders in taking an emergency action against a guaranty agency.
(3) The Secretary follows the procedures in 34 CFR 30.20-30.32 in
collecting a debt by offset against payments otherwise due a guaranty
agency or lender.
(f) Notwithstanding paragraphs (a)-(e) of this section, the
Secretary may waive the right to require repayment of funds by a lender
or agency if in the Secretary's judgment the best interests of the
United States so require. The Secretary's waiver policy for violations
of Sec. 682.406(a)(3) or (a)(5) is set forth in appendix D to this part.
(g) The Secretary's final decision to require repayment of funds or
to take other remedial action, other than a fine, against a lender or
guaranty agency under this section is conclusive and binding on the
lender or agency.
(h) In any action to require repayment of funds or to withhold funds
from a guaranty agency, or to limit, suspend, or terminate a guaranty
agency based on a violation of section 428(b)(3) of the Act, if the
Secretary finds that the guaranty agency provided or offered the
prohibited payments or activities, the Secretary applies a rebuttable
presumption that the payments or activities were offered or provided to
secure applications for FFEL loans or to secure FFEL loan volume. To
reverse the presumption, the guaranty agency must present evidence that
the activities or payments were provided for a reason unrelated to
securing applications for FFEL loans or securing FFEL loan volume.
Note to Sec. 682.413: A decision by the Secretary under this section
is subject to judicial review under 5 U.S.C. 706 and 41 U.S.C. 321-322.
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1, 1097)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22454, Apr. 29, 1994;
59 FR 61190, Nov. 29, 1994; 61 FR 60487, Nov. 27, 1996; 64 FR 18981,
Apr. 16, 1999; 64 FR 58632, Oct. 29, 1999; 72 FR 62006, Nov. 1, 2007; 78
FR 65820, Nov. 1, 2013]
Sec. 682.414 Records, reports, and inspection requirements for guaranty
agency programs.
(a) Records. (1)(i) The guaranty agency shall maintain current,
complete, and accurate records of each loan that it holds, including,
but not limited to, the records described in paragraph (a)(1)(ii) of
this section. The records must be maintained in a system that allows
ready identification of each loan's current status, updated at least
once every 10 business days. Any reference to a guaranty agency under
this section includes a third-party servicer that administers any aspect
of the FFEL programs under a contract with the guaranty agency, if
applicable.
(ii) The agency shall maintain--
(A) All documentation supporting the claim filed by the lender;
(B) Notices of changes in a borrower's address;
(C) A payment history showing the date and amount of each payment
received from or on behalf of the borrower by the guaranty agency, and
the amount of each payment that was attributed to principal, accrued
interest, and collection costs and other charges, such as late charges;
(D) A collection history showing the date and subject of each
communication between the agency and the borrower or endorser relating
to collection of a defaulted loan, each communication between the agency
and a consumer reporting agency regarding the loan, each effort to
locate a borrower whose address was unknown at any time, and each
request by the lender for default aversion assistance on the loan;
(E) Documentation regarding any wage garnishment actions initiated
by the agency on the loan;
(F) Documentation of any matters relating to the collection of the
loan by tax-refund offset; and
[[Page 166]]
(G) Any additional records that are necessary to document its right
to receive or retain payments made by the Secretary under this part and
the accuracy of reports it submits to the Secretary.
(2) A guaranty agency must retain the records required for each loan
for not less than 3 years following the date the loan is repaid in full
by the borrower, or for not less than 5 years following the date the
agency receives payment in full from any other source. However, in
particular cases, the Secretary may require the retention of records
beyond these minimum periods.
(3) A guaranty agency shall retain a copy of the audit report
required under Sec. 682.410(b) for not less than five years after the
report is issued.
(4)(i) The guaranty agency shall require a participating lender to
maintain current, complete, and accurate records of each loan that it
holds, including, but not limited to, the records described in paragraph
(a)(4)(ii) of this section. The records must be maintained in a system
that allows ready identification of each loan's current status.
(ii) The lender shall keep--
(A) A copy of the loan application if a separate application was
provided to the lender;
(B) A copy of the signed promissory note;
(C) The repayment schedule;
(D) A record of each disbursement of loan proceeds;
(E) Notices of changes in a borrower's address and status as at
least a half-time student;
(F) Evidence of the borrower's eligibility for a deferment;
(G) The documents required for the exercise of forbearance;
(H) Documentation of the assignment of the loan;
(I) A payment history showing the date and amount of each payment
received from or on behalf of the borrower, and the amount of each
payment that was attributed to principal, interest, late charges, and
other costs;
(J) A collection history showing the date and subject of each
communication between the lender and the borrower or endorser relating
to collection of a delinquent loan, each communication other than
regular reports by the lender showing that an account is current,
between the lender and a consumer reporting agency regarding the loan,
each effort to locate a borrower whose address is unknown at any time,
and each request by the lender for default aversion assistance on the
loan;
(K) Documentation of any MPN confirmation process or processes; and
(L) Any additional records that are necessary to document the
validity of a claim against the guarantee or the accuracy of reports
submitted under this part.
(iii) Except as provided in paragraph (a)(4)(iv) of this section, a
lender must retain the records required for each loan for not less than
3 years following the date the loan is repaid in full by the borrower,
or for not less than five years following the date the lender receives
payment in full from any other source. However, in particular cases, the
Secretary or the guaranty agency may require the retention of records
beyond this minimum period.
(iv) A lender shall retain a copy of the audit report required under
Sec. 682.305(c) for not less than five years after the report is issued.
(5)(i) A guaranty agency or lender may store the records specified
in paragraphs (a)(4)(ii)(C)-(L) of this section in accordance with 34
CFR 668.24(d)(3)(i) through (iv).
(ii) If a promissory note was signed electronically, the guaranty
agency or lender must store it electronically and it must be retrievable
in a coherent format.
(iii) A lender or guaranty agency holding a promissory note must
retain the original or a true and exact copy of the promissory note
until the loan is paid in full or assigned to the Secretary. When a loan
is paid in full by the borrower, the lender or guaranty agency must
return either the original or a true and exact copy of the note to the
borrower or notify the borrower that the loan is paid in full, and
retain a copy for the prescribed period.
(iv) If a lender made a loan based on an electronically signed MPN,
the holder of the original electronically signed MPN must retain that
original MPN for at least 3 years after all the
[[Page 167]]
loans made on the MPN have been satisfied.
(6)(i) Upon the Secretary's request with respect to a particular
loan or loans assigned to the Secretary and evidenced by an
electronically signed promissory note, the guaranty agency and the
lender that created the original electronically signed promissory note
must cooperate with the Secretary in all activities necessary to enforce
the loan or loans. The guaranty agency or lender must provide--
(A) An affidavit or certification regarding the creation and
maintenance of the electronic records of the loan or loans in a form
appropriate to ensure admissibility of the loan records in a legal
proceeding. This affidavit or certification may be executed in a single
record for multiple loans provided that this record is reliably
associated with the specific loans to which it pertains; and
(B) Testimony by an authorized official or employee of the guaranty
agency or lender, if necessary to ensure admission of the electronic
records of the loan or loans in the litigation or legal proceeding to
enforce the loan or loans.
(ii) The affidavit or certification described in paragraph
(a)(6)(i)(A) of this section must include, if requested by the
Secretary--
(A) A description of the steps followed by a borrower to execute the
promissory note (such as a flow chart);
(B) A copy of each screen as it would have appeared to the borrower
of the loan or loans the Secretary is enforcing when the borrower signed
the note electronically;
(C) A description of the field edits and other security measures
used to ensure integrity of the data submitted to the originator
electronically;
(D) A description of how the executed promissory note has been
preserved to ensure that it has not been altered after it was executed;
(E) Documentation supporting the lender's authentication and
electronic signature process; and
(F) All other documentary and technical evidence requested by the
Secretary to support the validity or the authenticity of the
electronically signed promissory note.
(iii) The Secretary may request a record, affidavit, certification
or evidence under paragraph (a)(6) of this section as needed to resolve
any factual dispute involving a loan that has been assigned to the
Secretary including, but not limited to, a factual dispute raised in
connection with litigation or any other legal proceeding, or as needed
in connection with loans assigned to the Secretary that are included in
a Title IV program audit sample, or for other similar purposes. The
guaranty agency must respond to any request from the Secretary within 10
business days.
(iv) As long as any loan made to a borrower under a MPN created by
the lender is not satisfied, the holder of the original electronically
signed promissory note is responsible for ensuring that all parties
entitled to access to the electronic loan record, including the guaranty
agency and the Secretary, have full and complete access to the
electronic record.
(b) Reports. A guaranty agency shall accurately complete and submit
to the Secretary the following reports:
(1) A report concerning the status of the agency's reserve fund and
the operation of the agency's loan guarantee program at the time and in
the manner that the Secretary may reasonably require. The Secretary does
not pay the agency any funds, the amount of which are determined by
reference to data in the report, until a complete and accurate report is
received.
(2) Annually, for each State in which it operates, a report of the
total guaranteed loan volume, default volume, and default rate for each
of the following categories of originating lenders on all loans
guaranteed after December 31, 1980:
(i) State or private nonprofit lenders.
(ii) Commercial financial institutions (banks, savings and loan
associations, and credit unions).
(iii) All other types of lenders.
(3) By July 1 of each year, a report on--
(i) Its eligibility criteria for lenders;
(ii) Its procedures for the limitation, suspension, and termination
of lenders;
(iii) Any actions taken in the preceding 12 months to limit,
suspend, or
[[Page 168]]
terminate the participation of a lender in the agency's program; and
(iv) The steps the agency has taken to ensure its compliance with
Sec. 682.410(c), including the identity of any law enforcement agency
with which the agency has made arrangements for that purpose.
(4) A report to the Secretary of the borrower's enrollment and loan
status information, or any Title IV loan-related data required by the
Secretary, by the deadline date established by the Secretary.
(5) Any other information concerning its loan insurance program
requested by the Secretary.
(c) Inspection requirements. (1) For purposes of examination of
records, references to an institution in 34 CFR 668.24(f) (1) through
(3) shall mean a guaranty agency or its agent.
(2) A guaranty agency shall require in its agreement with a lender
or in its published rules or procedures that the lender or its agent
give the Secretary or the Secretary's designee and the guaranty agency
access to the lender's records for inspection and copying in order to
verify the accuracy of the information provided by the lender pursuant
to Sec. 682.401(b) (12) and (13), and the right of the lender to receive
or retain payments made under this part, or to permit the Secretary or
the agency to enforce any right acquired by the Secretary or the agency
under this part.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59
FR 22455, 22489, Apr. 29, 1994; 59 FR 33358, June 28, 1994; 59 FR 34964,
July 7, 1994; 61 FR 60493, Nov. 27, 1996; 64 FR 58632, Oct. 29, 1999; 64
FR 58963, Nov. 1, 1999; 65 FR 65621, Nov. 1, 2000; 66 FR 34764, June 29,
2001; 67 FR 67080, Nov. 1, 2002; 72 FR 62007, Nov. 1, 2007; 78 FR 65820,
Nov. 1, 2013]
Sec. 682.415 [Reserved]
Sec. 682.416 Requirements for third-party servicers and lenders
contracting with third-party servicers.
(a) Standards for administrative capability. A third-party servicer
is considered administratively responsible if it--
(1) Provides the services and administrative resources necessary to
fulfill its contract with a lender or guaranty agency, and conducts all
of its contractual obligations that apply to the FFEL programs in
accordance with FFEL programs regulations;
(2) Has business systems including combined automated and manual
systems, that are capable of meeting the requirements of part B of Title
IV of the Act and with the FFEL programs regulations; and
(3) Has adequate personnel who are knowledgeable about the FFEL
programs.
(b) Standards of financial responsibility. The Secretary applies the
provisions of 34 CFR 668.15(b) (1)-(4) and (6)-(9) to determine that a
third-party servicer is financially responsible under this part.
References to ``the institution'' in those provisions shall be
understood to mean the third-party servicer, for this purpose.
(c) Special review of third-party servicer. (1) The Secretary may
review a third-party servicer to determine that it meets the
administrative capability and financial responsibility standards in this
section.
(2) In response to a request from the Secretary, the servicer shall
provide evidence to demonstrate that it meets the administrative
capability and financial responsibility standards in this section.
(3) The servicer may also provide evidence of why administrative
action is unwarranted if it is unable to demonstrate that it meets the
standards of this section.
(4) Based on the review of the materials provided by the servicer,
the Secretary determines if the servicer meets the standards in this
part. If the servicer does not, the Secretary may initiate an
administrative proceeding under subpart G.
(d) Past performance of third-party servicer or persons affiliated
with servicer. Notwithstanding paragraphs (b) and (c) of this section, a
third-party servicer is not financially responsible if--
(1)(i) The servicer; its owner, majority shareholder, or chief
executive officer; any person employed by the
[[Page 169]]
servicer in a capacity that involves the administration of a Title IV,
HEA program or the receipt of Title IV, HEA program funds; any person,
entity, or officer or employee of an entity with which the servicer
contracts where that person, entity, or officer or employee of the
entity acts in a capacity that involves the administration of a Title
IV, HEA program or the receipt of Title IV, HEA program funds has been
convicted of, or has pled nolo contendere or guilty to, a crime
involving the acquisition, use, or expenditure of Federal, State, or
local government funds, or has been administratively or judicially
determined to have committed fraud or any other material violation of
law involving such funds, unless--
(A) The funds that were fraudulently obtained, or criminally
acquired, used, or expended have been repaid to the United States, and
any related financial penalty has been paid;
(B) The persons who were convicted of, or pled nolo contendere or
guilty to, a crime involving the acquisition, use, or expenditure of the
funds are no longer incarcerated for that crime; and
(C) At least five years have elapsed from the date of the
conviction, nolo contendere plea, guilty plea, or administrative or
judicial determination; or
(ii) The servicer, or any principal or affiliate of the servicer (as
those terms are defined in 34 CFR part 85), is--
(A) Debarred or suspended under Executive Order (E.O.) 12549 (3 CFR,
1986 Comp., p. 189) or the Federal Acquisition Regulations (FAR), 48 CFR
part 9, subpart 9.4; or
(B) Engaging in any activity that is a cause under 2 CFR 180.700 or
180.800, as those sections are adopted at 2 CFR 3485.12 for debarment or
suspension under E.O. 12549 (3 CFR, 1986 Comp., p. 189) or the FAR, 48
CFR part 9, subpart 9.4; and
(2) Upon learning of a conviction, plea, or administrative or
judicial determination described in paragraph (d)(1) of this section,
the servicer does not promptly remove the person, agency, or
organization from any involvement in the administration of the
servicer's participation in title IV, HEA programs, including, as
applicable, the removal or elimination of any substantial control, as
determined under 34 CFR 668.15, over the servicer.
(e) Independent audits. (1) A third-party servicer shall arrange for
an independent audit of its administration of the FFELP loan portfolio
unless--
(i) The servicer contracts with only one lender or guaranty agency;
and
(ii) The audit of that lender's or guaranty agency's FFEL programs
involves every aspect of the servicer's administration of those FFEL
programs.
(2) The audit must--
(i) Examine the servicer's compliance with the Act and applicable
regulations;
(ii) Examine the servicer's financial management of its FFEL program
activities;
(iii) Be conducted in accordance with the standards for audits
issued by the United States General Accounting Office's (GAO's)
Standards for Audit of Governmental Organizations, Programs, Activities,
and Functions. (This publication is available from the Superintendent of
Documents, U.S. Government Printing Office, Washington, DC 20402.)
Procedures for audits are contained in an audit guide developed by and
available from the Office of Inspector General of the Department of
Education; and
(iv) Except for the initial audit, be conducted at least annually
and be submitted to the Secretary within six months of the end of the
audit period. The initial audit must be an annual audit of the
servicer's first full fiscal year beginning on or after July 1, 1994,
and include any period from the beginning of the first full fiscal year.
The audit report must be submitted to the Secretary within six months of
the end of the audit period. Each subsequent audit must cover the
servicer's activities for the one-year period beginning no later than
the end of the period covered by the preceding audit.
(3) A third-party servicer must conduct the audit required by this
paragraph in accordance with 31 U.S.C. 7502 and 2 CFR part 200, subpart
F--Audit Requirements.\3\
---------------------------------------------------------------------------
\3\ None of the other regulations in 2 CFR part 200 apply to
lenders. Only those requirements in subpart F-Audit Requirements, apply
to lenders, as required under the Single Audit Act Amendments of 1996
(31 U.S.C. Chapter 75).
---------------------------------------------------------------------------
[[Page 170]]
(4) [Reserved]
(f) Contract responsibilities. A lender that participates in the
FFEL programs may not enter into a contract with a third-party servicer
that the Secretary has determined does not meet the requirements of this
section. The lender must provide the Secretary with the name and address
of any third-party servicer with which the lender enters into a contract
and, upon request by the Secretary, a copy of that contract. A third-
party servicer that is under contract with a lender to perform any
activity for which the records in Sec. 682.414(a)(4)(ii) are relevant to
perform the services for which the servicer has contracted shall
maintain current, complete, and accurate records pertaining to each loan
that the servicer is under contract to administer on behalf of the
lender. The records must be maintained in a system that allows ready
identification of each loan's current status.
(Approved by the Office of Management and Budget under control number
1840-0537)
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082; E.O. 12549 (3
CFR, 1986 Comp., p. 189), 12689 (3 CFR, 1989 Comp., p. 235))
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22455, Apr. 29, 1994;
59 FR 34964, July 7, 1994; 66 FR 34764, June 29, 2001; 68 FR 66615, Nov.
26, 2003; 77 FR 18679, Mar. 28, 2012; 78 FR 65820, Nov. 1, 2013; 79 FR
76105, Dec. 19, 2014]
Sec. 682.417 Determination of Federal funds or assets to be returned.
(a) General. The procedures described in this section apply to a
determination by the Secretary that--
(1) A guaranty agency must return to the Secretary a portion of its
Federal Fund that the Secretary has determined is unnecessary to pay the
program expenses and contingent liabilities of the agency; and
(2) A guaranty agency must require the return to the agency or the
Secretary of Federal funds or assets within the meaning of section
422(g)(1) of the Act held by or under the control of any other entity
that the Secretary determines are necessary to pay the program expenses
and contingent liabilities of the agency or that are required for the
orderly termination of the guaranty agency's operations and the
liquidation of its assets.
(b) Return of unnecessary Federal funds. (1) The Secretary may
initiate a process to recover unnecessary Federal funds under paragraph
(a)(1) of this section if the Secretary determines that a guaranty
agency's Federal Fund ratio under Sec. 682.410(a)(10) for each of the
two preceding Federal fiscal years exceeded 2.0 percent.
(2) If the Secretary initiates a process to recover unnecessary
Federal funds, the Secretary requires the return of a portion of the
Federal funds that the Secretary determines will permit the agency to--
(i) Have a Federal Fund ratio of at least 2.0 percent under
Sec. 682.410(a)(10) at the time of the determination; and
(ii) Meet the minimum Federal Fund requirements under
Sec. 682.410(a)(10) and retain sufficient additional Federal funds to
perform its responsibilities as a guaranty agency during the current
Federal fiscal year and the four succeeding Federal fiscal years.
(3)(i) The Secretary makes a determination of the amount of Federal
funds needed by the guaranty agency under paragraph (b)(2) of this
section on the basis of financial projections for the period described
in that paragraph. If the agency provides projections for a period
longer than the period referred to in that paragraph, the Secretary may
consider those projections.
(ii) The Secretary may require a guaranty agency to provide
financial projections in a form and on the basis of assumptions
prescribed by the Secretary. If the Secretary requests the agency to
provide financial projections, the agency must provide the projections
within 60 days of the Secretary's request. If the agency does not
provide the projections within the specified time period, the Secretary
determines the amount of Federal funds needed by the agency on the basis
of other information.
(c) Notice. (1) The Secretary or an authorized Departmental official
begins a proceeding to order a guaranty agency to return a portion of
its Federal funds, or to direct the return of Federal funds or assets
subject to return, by sending
[[Page 171]]
the guaranty agency a notice by certified mail, return receipt
requested.
(2) The notice--
(i) Informs the guaranty agency of the Secretary's determination
that Federal funds or assets must be returned;
(ii) Describes the basis for the Secretary's determination and
contains sufficient information to allow the guaranty agency to prepare
and present an appeal;
(iii) States the date by which the return of Federal funds or assets
must be completed;
(iv) Describes the process for appealing the determination,
including the time for filing an appeal and the procedure for doing so;
and
(v) Identifies any actions that the guaranty agency must take to
ensure that the Federal funds or assets that are the subject of the
notice are maintained and protected against use, expenditure, transfer,
or other disbursement after the date of the Secretary's determination,
and the basis for requiring those actions. The actions may include, but
are not limited to, directing the agency to place the Federal funds in
an escrow account. If the Secretary has directed the guaranty agency to
require the return of Federal funds or assets held by or under the
control of another entity, the guaranty agency must ensure that the
agency's claims to those funds or assets and the collectability of the
agency's claims will not be compromised or jeopardized during an appeal.
The guaranty agency must also comply with all other applicable
regulations relating to the use of Federal funds and assets.
(d) Appeal. (1) A guaranty agency may appeal the Secretary's
determination that Federal funds or assets must be returned by filing a
written notice of appeal within 20 days of the date of the guaranty
agency's receipt of the notice of the Secretary's determination. If the
agency files a notice of appeal, the requirement that the return of
Federal funds or assets be completed by a particular date is suspended
pending completion of the appeal process. If the agency does not file a
notice of appeal within the period specified in this paragraph, the
Secretary's determination is final.
(2) A guaranty agency must submit the information described in
paragraph (d)(4) of this section within 45 days of the date of the
guaranty agency's receipt of the notice of the Secretary's determination
unless the Secretary agrees to extend the period at the agency's
request. If the agency does not submit that information within the
prescribed period, the Secretary's determination is final.
(3) A guaranty agency's appeal of a determination that Federal funds
or assets must be returned is considered and decided by a Departmental
official other than the official who issued the determination or a
subordinate of that official.
(4) In an appeal of the Secretary's determination, the guaranty
agency must--
(i) State the reasons the guaranty agency believes the Federal funds
or assets need not be returned;
(ii) Identify any evidence on which the guaranty agency bases its
position that Federal funds or assets need not be returned;
(iii) Include copies of the documents that contain this evidence;
(iv) Include any arguments that the guaranty agency believes support
its position that Federal funds or assets need not be returned; and
(v) Identify the steps taken by the guaranty agency to comply with
the requirements referred to in paragraph (c)(2)(v) of this section.
(5)(i) In its appeal, the guaranty agency may request the
opportunity to make an oral argument to the deciding official for the
purpose of clarifying any issues raised by the appeal. The deciding
official provides this opportunity promptly after the expiration of the
period referred to in paragraph (d)(2) of this section.
(ii) The agency may not submit new evidence at or after the oral
argument unless the deciding official determines otherwise. A transcript
of the oral argument is made a part of the record of the appeal and is
promptly provided to the agency.
(6) The guaranty agency has the burden of production and the burden
of persuading the deciding official that the Secretary's determination
should be modified or withdrawn.
[[Page 172]]
(e) Third-party participation. (1) If the Secretary issues a
determination under paragraph (a)(1) of this section, the Secretary
promptly publishes a notice in the Federal Register announcing the
portion of the Federal Fund to be returned by the agency and providing
interested persons an opportunity to submit written information relating
to the determination within 30 days after the date of publication. The
Secretary publishes the notice no earlier than five days after the
agency receives a copy of the determination.
(2) If the guaranty agency to which the determination relates files
a notice of appeal of the determination, the deciding official may
consider any information submitted in response to the Federal Register
notice. All information submitted by a third party is available for
inspection and copying at the offices of the Department of Education in
Washington, D.C., during normal business hours.
(f) Adverse information. If the deciding official considers
information in addition to the evidence described in the notice of the
Secretary's determination that is adverse to the guaranty agency's
position on appeal, the deciding official informs the agency and
provides it a reasonable opportunity to respond to the information
without regard to the period referred to in paragraph (d)(2) of this
section.
(g) Decision. (1) The deciding official issues a written decision on
the guaranty agency's appeal within 45 days of the date on which the
information described in paragraphs (d)(4) and (d)(5)(ii) of this
section is received, or the oral argument referred to in paragraph
(d)(5) of this section is held, whichever is later. The deciding
official mails the decision to the guaranty agency by certified mail,
return receipt requested. The decision of the deciding official becomes
the final decision of the Secretary 30 days after the deciding official
issues it. In the case of a determination that a guaranty agency must
return Federal funds, if the deciding official does not issue a decision
within the prescribed period, the agency is no longer required to take
the actions described in paragraph (c)(2)(v) of this section.
(2) A guaranty agency may not seek judicial review of the
Secretary's determination to require the return of Federal funds or
assets until the deciding official issues a decision.
(3) The deciding official's written decision includes the basis for
the decision. The deciding official bases the decision only on evidence
described in the notice of the Secretary's determination and on
information properly submitted and considered by the deciding official
under this section. The deciding official is bound by all applicable
statutes and regulations and may neither waive them nor rule them
invalid.
(h) Collection of Federal funds or assets. (1) If the deciding
official's final decision requires the guaranty agency to return Federal
funds, or requires the guaranty agency to require the return of Federal
funds or assets to the agency or to the Secretary, the decision states a
new date for compliance with the decision. The new date is no earlier
than the date on which the decision becomes the final decision of the
Secretary.
(2) If the guaranty agency fails to comply with the decision, the
Secretary may recover the Federal funds from any funds due the agency
from the Department without any further notice or procedure and may take
any other action permitted or authorized by law to compel compliance.
(Approved by the Office of Management and Budget under control number
1845-0020)
[64 FR 58632, Oct. 29, 1999]
Sec. 682.418 [Reserved]
Sec. 682.419 Guaranty agency Federal Fund.
(a) Establishment and control. A guaranty agency must establish and
maintain a Federal Student Loan Reserve Fund (referred to as the
``Federal Fund'') to be used only as permitted under paragraph (c) of
this section. The assets of the Federal Fund and the earnings on those
assets are, at all times, the property of the United States. The
guaranty agency must exercise the level of care required of a fiduciary
charged with the duty of protecting, investing, and administering the
money of others.
[[Page 173]]
(b) Deposits. The agency must deposit into the Federal Fund--
(1) All funds, securities, and other liquid assets of the reserve
fund that existed under Sec. 682.410;
(2) The total amount of insurance premiums or Federal default fees
collected;
(3) Federal payments for default, bankruptcy, death, disability,
closed school, false certification, and other claims;
(4) Federal payments for supplemental preclaims assistance
activities performed before October 1, 1998;
(5) 70 percent of administrative cost allowances received on or
after October 1, 1998 for loans upon which insurance was issued before
October 1, 1998;
(6) All funds received by the guaranty agency from any source on
FFEL Program loans on which a claim has been paid, within 48 hours of
receipt of those funds, minus the portion the agency is authorized to
deposit in its Operating Fund;
(7) Investment earnings on the Federal Fund;
(8) Revenue derived from the Federal portion of a nonliquid asset;
and
(9) Other funds received by the guaranty agency from any source that
are specifically designated for deposit in the Federal Fund.
(c) Uses. A guaranty agency may use the assets of the Federal Fund
only--
(1) To pay insurance claims;
(2) To transfer default aversion fees to the agency's Operating
Fund;
(3) To transfer account maintenance fees to the agency's Operating
Fund, if directed by the Secretary;
(4) To refund payments made by or on behalf of a borrower on a loan
that has been discharged in accordance with Sec. 682.402;
(5) To pay the Secretary's share of borrower payments, in accordance
with Sec. 682.404(g);
(6) For transfers to the agency's Operating Fund, pursuant to
section 422A(f) of the Act;
(7) To refund insurance premiums or Federal default fees related to
loans cancelled or refunded, in whole or in part;
(8) To return to the Secretary portions of the Federal Fund required
to be returned by the Act; and
(9) For any other purpose authorized by the Secretary.
(d) Prohibition against prepayment. A guaranty agency may not prepay
obligations of the Federal Fund unless it demonstrates, to the
satisfaction of the Secretary, that the prepayment is in the best
interests of the United States.
(e) Minimum Federal Fund level. The guaranty agency must maintain a
minimum Federal Fund level equal to at least 0.25 percent of its insured
original principal amount of loans outstanding.
(f) Definitions. For purposes of this section--
(1) Federal Fund level means the total of Federal Fund assets
identified in paragraph (b) of this section plus the amount of funds
transferred from the Federal Fund that are in the Operating Fund, using
an accrual basis of accounting.
(2) Original principal amount of loans outstanding means--
(i) The sum of--
(A) The original principal amount of all loans guaranteed by the
agency; and
(B) The original principal amount of any loans on which the
guarantee was transferred to the agency from another guarantor,
excluding loan guarantees transferred to another agency pursuant to a
plan of the Secretary in response to the insolvency of the agency;
(ii) Minus the original principal amount of all loans on which--
(A) The loan guarantee was cancelled;
(B) The loan guarantee was transferred to another agency;
(C) Payment in full has been made by the borrower;
(D) Reinsurance coverage has been lost and cannot be regained; and
(E) The agency paid claims.
(Authority: 20 U.S.C. 1072-1)
[64 FR 58634, Oct. 29, 1999, as amended at 71 FR 45708, Aug. 9, 2006; 78
FR 65820, Nov. 1, 2013]
Secs. 682.420-682.422 [Reserved]
Sec. 682.423 Guaranty agency Operating Fund.
(a) Establishment and control. A guaranty agency must establish and
maintain an Operating Fund in an account
[[Page 174]]
separate from the Federal Fund. Except for funds that may have been
transferred from the Federal Fund, the Operating Fund is considered the
property of the guaranty agency.
(b) Deposits. The guaranty agency must deposit into the Operating
Fund--
(1) Amounts authorized by the Secretary to be transferred from the
Federal Fund;
(2) Account maintenance fees;
(3) Loan processing and issuance fees;
(4) Default aversion fees;
(5) 30 percent of administrative cost allowances received on or
after October 1, 1998 for loans upon which insurance was issued before
October 1, 1998;
(6) The portion of the amounts collected on defaulted loans that
remains after the Secretary's share of collections has been paid and the
complement of the reinsurance percentage has been deposited into the
Federal Fund;
(7) The agency's share of the payoff amounts received from the
consolidation or rehabilitation of defaulted loans; and
(8) Other receipts as authorized by the Secretary.
(c) Uses. A guaranty agency may use the Operating Fund for--
(1) Guaranty agency-related activities, including--
(i) Application processing;
(ii) Loan disbursement;
(iii) Enrollment and repayment status management;
(iv) Default aversion activities;
(v) Default collection activities;
(vi) School and lender training;
(vii) Financial aid awareness and related outreach activities; and
(viii) Compliance monitoring; and
(2) Other student financial aid-related activities for the benefit
of students, as selected by the guaranty agency.
(Authority: 20 U.S.C. 1072-2)
[64 FR 58635, Oct. 29, 1999, as amended at 78 FR 65820, Nov. 1, 2013]
Subpart E [Reserved]
Subpart F_Requirements, Standards, and Payments for Schools That
Participated in the FFEL Program
Secs. 682.600-682.602 [Reserved]
Sec. 682.603 Certification by a school that participated in the FFEL
Program in connection with a loan application.
(a) A school shall certify that the information it provides in
connection with a loan application about the borrower and, in the case
of a parent borrower, the student for whom the loan is intended, is
complete and accurate. Except as provided in 34 CFR part 668, subpart E,
a school may rely in good faith upon statements made by the borrower
and, in the case of a parent borrower of a PLUS loan, the student and
the parent borrower.
(b) The information to be provided by the school about the borrower
pertains to--
(1) The borrower's eligibility for a loan, as determined in
accordance with Sec. 682.201 and Sec. 682.204;
(2) For a subsidized Stafford loan, the student's eligibility for
interest benefits as determined in accordance with Sec. 682.301; and
(3) The schedule for disbursement of the loan proceeds, which must
reflect the delivery of the loan proceeds as set forth in section 428G
of the Act.
(c) Except as provided in paragraph (e) of this section, in
certifying a loan, a school must certify a loan for the lesser of the
borrower's request or the loan limits determined under Sec. 682.204.
(d) Before certifying a PLUS loan application for a graduate or
professional student borrower, the school must determine the borrower's
eligibility for a Stafford loan. If the borrower is eligible for a
Stafford loan but has not requested the maximum Stafford loan amount for
which the borrower is eligible, the school must--
(1) Notify the graduate or professional student borrower of the
maximum Stafford loan amount that he or she is eligible to receive and
provide the borrower with a comparison of--
(i) The maximum interest rate for a Stafford loan and the maximum
interest rate for a PLUS loan;
[[Page 175]]
(ii) Periods when interest accrues on a Stafford loan and periods
when interest accrues on a PLUS loan; and
(iii) The point at which a Stafford loan enters repayment and the
point at which a PLUS loan enters repayment; and
(2) Give the graduate or professional student borrower the
opportunity to request the maximum Stafford loan amount for which the
borrower is eligible.
(e) A school may not certify a Stafford or PLUS loan, or a
combination of loans, for a loan amount that--
(1) The school has reason to know would result in the borrower
exceeding the annual or maximum loan amounts in Sec. 682.204; or
(2) Exceeds the student's estimated cost of attendance for the
period of enrollment, less--
(i) The student's estimated financial assistance for that period;
and
(ii) In the case of a Subsidized Stafford loan, the borrower's
expected family contribution for that period.
(f)(1)(i) The minimum period of enrollment for which a school may
certify a loan application is--
(A) At a school that measures academic progress in credit hours and
uses a semester, trimester, or quarter system, or has terms that are
substantially equal in length with no term less than nine weeks in
length, a single term (e.g., a semester or quarter); or
(B) Except as provided in paragraphs (f)(1)(ii) or (iii) of this
section, at a school that measures academic progress in clock hours, or
measures academic progress in credit hours but does not use a semester,
trimester, or quarter system and does not have terms that are
substantially equal in length with no term less than nine weeks in
length, the lesser of--
(1) The length of the student's program (or the remaining portion of
that program if the student has less than the full program remaining) at
the school; or
(2) The academic year as defined by the school in accordance with 34
CFR 668.3.
(ii) For a student who transfers into a school with credit or clock
hours from another school, and the prior school certified or originated
a loan for a period of enrollment that overlaps the period of enrollment
at the new school, the new school may certify a loan for the remaining
portion of the program or academic year. In this case the school may
certify a loan for an amount that does not exceed the remaining balance
of the student's annual loan limit.
(iii) For a student who completes a program at a school, where the
student's last loan to complete that program had been for less than an
academic year, and the student then begins a new program at the same
school, the school may certify a loan for the remainder of the academic
year. In this case the school may certify a loan for an amount that does
not exceed the remaining balance of the student's annual loan limit at
the loan level associated with the new program.
(2) May not, for first-time borrowers, assign through award
packaging or other methods, a borrower's loan to a particular lender;
(3) May refuse to certify a Stafford or PLUS loan or may reduce the
borrower's determination of need for the loan if the reason for that
action is documented and provided to the borrower in writing, provided
that--
(i) The determination is made on a case-by-case basis; and
(ii) The documentation supporting the determination is retained in
the student's file; and
(4) May not, under paragraph (f)(1), (2), and (3) of this section,
engage in any pattern or practice that results in a denial of a
borrower's access to FFEL loans because of the borrower's race, sex,
color, religion, national origin, age, handicapped status, income, or
selection of a particular lender or guaranty agency.
(g) The maximum period for which a school may certify a loan
application is--
(1) Generally an academic year, as defined by 34 CFR 668.3, except
that a guaranty agency may allow a school to use a longer period of
time, corresponding to the period to which the agency applies the annual
loan limits; or
(2) For a defaulted borrower who has regained eligibility under
Sec. 682.401(b)(1),
[[Page 176]]
the academic year in which the borrower regained eligibility.
(h) In certifying a Stafford or Unsubsidized Stafford loan amount in
accordance with Sec. 682.204--
(1) A program of study must be considered at least one full academic
year if--
(i) The number of weeks of instructional time is at least 30 weeks;
and
(ii) The number of clock hours is a least 900, the number of
semester or trimester hours is at least 24, or the number of quarter
hours is at least 36;
(2) A program of study must be considered two-thirds (2/3) of an
academic year if--
(i) The number of weeks of instructional time is at least 20 weeks;
and
(ii) The number of clock hours is at least 600, the number of
semester or trimester hours is at least 16, or the number of quarter
hours is at least 24;
(3) A program of study must be considered one-third (\1/3\) of an
academic year if--
(i) The number of weeks of instructional time is at least 10 weeks;
and
(ii) The number of clock hours is at least 300, the number of
semester or trimester hours is at least 8, or the number of quarter
hours is at least 12; and
(4) In prorating a loan amount for a student enrolled in a program
of study with less than a full academic year remaining, the school need
not recalculate the amount of the loan if the number of hours for which
an eligible student is enrolled changes after the school certifies the
loan.
(i)(1) If a school measures academic progress in an educational
program in credit hours and uses either standard terms (semesters,
trimesters, or quarters) or nonstandard terms that are substantially
equal in length, and each term is at least nine weeks of instructional
time in length, a student is considered to have completed an academic
year and progresses to the next annual loan limit when the academic year
calendar period has elapsed.
(2) If a school measures academic progress in an educational program
in credit hours and uses nonstandard terms that are not substantially
equal in length or each term is not at least nine weeks of instructional
time in length, or measures academic progress in credit hours and does
not have academic terms, a student is considered to have completed an
academic year and progresses to the next annual loan limit at the later
of--
(i) The student's completion of the weeks of instructional time in
the student's academic year; or
(ii) The date, as determined by the school, that the student has
successfully completed the academic coursework in the student's academic
year.
(3) If a school measures academic progress in an educational program
in clock hours, a student is considered to have completed an academic
year and progresses to the next annual loan limit at the later of--
(i) The student's completion of the weeks of instructional time in
the student's academic year; or
(ii) The date, as determined by the school, that the student has
successfully completed the clock hours in the student's academic year.
(4) For purposes of this section, terms in a loan period are
substantially equal in length if no term in the loan period is more than
two weeks of instructional time longer than any other term in that loan
period.
(j)(1) A school must cease certifying loans based on the exceptions
in section 428G(a)(3) of the Act no later than--
(i) 30 days after the date the school receives notification from the
Secretary of an FFEL cohort default rate, calculated under subpart M of
34 CFR part 668, that causes the school to no longer meet the
qualifications outlined in those paragraphs; or
(ii) October 1, 2002.
(2) A school must cease certifying loans based on the exceptions in
section 428G(a)(3) of the Act no later than 30 days after the date the
school receives notification from the Secretary of an FFEL cohort
default rate, calculated under subpart M of 34 CFR part 668, that causes
the school to no longer meet the qualifications outlined in those
paragraphs.
(k) A school may not assess the borrower, or the student in the case
of a parent PLUS loan, a fee for the completion or certification of any
FFEL
[[Page 177]]
Program form or information or for providing any information necessary
for a student or parent to receive a loan under part B of the Act or any
benefits associated with such a loan.
(l) Pursuant to paragraph (b)(3) of this section, a school may not
request the disbursement by the lender for loan proceeds earlier than
the period specified in 34 CFR 668.167.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59
FR 33358, June 28, 1994; 59 FR 61722, Dec. 1, 1994; 60 FR 61757, Dec. 1,
1995; 61 FR 60609, Nov. 29, 1996; 64 FR 18981, Apr. 16, 1999; 64 FR
58963, Nov. 1, 1999; 65 FR 65650, Nov. 1, 2000; 66 FR 34764, June 29,
2001; 67 FR 67080, Nov. 1, 2002; 68 FR 75429, Dec. 31, 2003; 71 FR
45709, Aug. 9, 2006; 72 FR 62007, 62031, Nov. 1, 2007; 78 FR 65820, Nov.
1, 2013]
Sec. 682.604 Required exit counseling for borrowers.
(a) Exit counseling. (1) A school must ensure that exit counseling
is conducted with each Stafford Loan borrower and graduate or
professional student PLUS Loan borrower either in person, by audiovisual
presentation, or by interactive electronic means. In each case, the
school must ensure that this counseling is conducted shortly before the
student borrower ceases at least half-time study at the school, and that
an individual with expertise in the title IV programs is reasonably
available shortly after the counseling to answer the student borrower's
questions. As an alternative, in the case of a student borrower enrolled
in a correspondence program or a study-abroad program that the home
institution approves for credit, written counseling materials may be
provided by mail within 30 days after the student borrower completes the
program. If a student borrower withdraws from school without the
school's prior knowledge or fails to complete an exit counseling session
as required, the school must, within 30 days after learning that the
student borrower has withdrawn from school or failed to complete the
exit counseling as required, ensure that exit counseling is provided
through interactive electronic means, by mailing written counseling
materials to the student borrower at the student borrower's last known
address, or by sending written counseling materials to an email address
provided by the student borrower that is not an email address associated
with the school sending the counseling materials.
(2) The exit counseling must--
(i) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's indebtedness or on the
average indebtedness of student borrowers who have obtained Stafford
loans, PLUS Loans, or student borrowers who have obtained both Stafford
and PLUS loans, depending on the types of loans the student borrower has
obtained, for attendance at the same school or in the same program of
study at the same school;
(ii) Review for the student borrower available repayment plan
options, including standard, graduated, extended, income sensitive and
income-based repayment plans, including a description of the different
features of each plan and sample information showing the average
anticipated monthly payments, and the difference in interest paid and
total payments under each plan;
(iii) Explain to the borrower the options to prepay each loan, to
pay each loan on a shorter schedule, and to change repayment plans;
(iv) Provide information on the effects of loan consolidation
including, at a minimum--
(A) The effects of consolidation on total interest to be paid, fees
to be paid, and length of repayment;
(B) The effects of consolidation on a borrower's underlying loan
benefits, including grace periods, loan forgiveness, cancellation, and
deferment opportunities;
(C) The options of the borrower to prepay the loan and to change
repayment plans; and
(D) That borrower benefit programs may vary among different lenders;
(v) Include debt-management strategies that are designed to
facilitate repayment;
(vi) Explain to the borrower the use of a Master Promissory Note;
[[Page 178]]
(vii) Emphasize to the student borrower the seriousness and
importance of the repayment obligation the borrower has assumed;
(viii) Emphasize to the student borrower that the full amount of the
loan (other than a loan made or originated by the school) must be repaid
in full even if the student borrower does not complete the program, does
not complete the program within the regular time for program completion,
is unable to obtain employment upon completion, or is otherwise
dissatisfied with or does not receive the educational or other services
that the student borrower purchased from the school;
(ix) Describe the likely consequences of default, including adverse
credit reports, delinquent debt collection procedures under Federal law,
and litigation;
(x) Provide--
(A) A general description of the terms and conditions under which a
borrower may obtain full or partial forgiveness or discharge of
principal and interest, defer repayment of principal or interest, or be
granted forbearance on a title IV loan, including forgiveness benefits
or discharge benefits available to a FFEL borrower who consolidates his
or her loan into the Direct Loan program; and
(B) A copy, either in print or by electronic means, of the
information the Secretary makes available pursuant to section 485(d) of
the HEA;
(xi) Require the student borrower to provide current information
concerning name, address, social security number, references, and
driver's license number and State of issuance, as well as the student
borrower's expected permanent address, the address of the student
borrower's next of kin, and the name and address of the student
borrower's expected employer (if known). The school must ensure that
this information is provided to the guaranty agency or agencies listed
in the student borrower's records within 60 days after the student
borrower provides the information;
(xii) Review for the student borrower information on the
availability of the Student Loan Ombudsman's office;
(xiii) Inform the student borrower of the availability of title IV
loan information in the National Student Loan Data System (NSLDS) and
how NSLDS can be used to obtain title IV loan status information; and
(xiv) A general description of the types of tax benefits that may be
available to borrowers.
(3) If exit counseling is conducted by electronic interactive means,
the school must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes the counseling.
(4) The school must maintain documentation substantiating the
school's compliance with this section for each student borrower.
(5)(i) For students who have received both FFEL Program and Direct
Loan Program loans for attendance at a school, the school's compliance
with the exit counseling requirements in 34 CFR 685.304(b) satisfies the
requirements of this section if the school ensures that the exit
counseling also provides the borrower with the information described in
paragraphs (a)(2)(i) and (a)(2)(ii) of this section.
(ii) A student's completion of electronic interactive exit
counseling offered by the Secretary satisfies the requirements of this
section, and for students who have also received Direct Loan Program
loans for attendance at the school, the requirements of 34 CFR
685.304(b).
(b) [Reserved]
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1082, 1085, 1092, 1094)
[57 FR 60323, Dec. 18, 1992]
Editorial Note: For Federal Register citations affecting
Sec. 682.604, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
Sec. 682.605 Determining the date of a student's withdrawal.
(a) Except in the case of a student who does not return for the next
scheduled term following a summer break, which includes any summer term
or terms in which classes are offered but students are not generally
required to
[[Page 179]]
attend, a school must follow the procedures in Sec. 668.22(b) or (c), as
applicable, for determining the student's date of withdrawal. In the
case of a student who does not return from a summer break, the school
must follow the procedures in Sec. 668.22(b) or (c), as applicable,
except that the school shall determine the student's withdrawal date no
later than 30 days after the first day of the next scheduled term.
(b) The school must use the withdrawal date determined under
Sec. 668.22(b) or (c), as applicable for the purpose of reporting to the
lender and the Secretary the date that the student has withdrawn from
the school.
(c) For the purpose of a school's reporting to a lender and the
Secretary, a student's withdrawal date is the month, day and year of the
withdrawal date.
(Approved by the Office of Management and Budget under control number
1845-0020)
[60 FR 61757, Dec. 1, 1995, as amended at 64 FR 58965, 59043, Nov. 1,
1999; 78 FR 65822, Nov. 1, 2013]
Sec. 682.606 [Reserved]
Sec. 682.607 Payment of a refund or a return of title IV, HEA program
funds to a lender upon a student's withdrawal.
(a) General. By applying for a FFEL loan, a borrower authorizes the
school to pay directly to the lender that portion of a refund or return
of title IV, HEA program funds from the school that is allocable to the
loan upon the borrower's withdrawal. A school--
(1) Must pay that portion of the student's refund or return of title
IV, HEA program funds that is allocable to a FFEL loan to--
(i) The original lender; or
(ii) A subsequent holder, if the loan has been transferred and the
school knows the new holder's identity; and
(2) Must provide simultaneous written notice to the borrower if the
school makes a payment of a refund or a return of title IV, HEA program
funds to a lender on behalf of that student.
(b) Allocation of a refund or returned title IV, HEA program funds.
In determining the portion of a refund or the return of title IV, HEA
program funds upon a student's withdrawal for an academic period that is
allocable to a FFEL loan received by the borrower for that academic
period, the school must follow the procedures established in part 668
for allocating a refund or return of title IV, HEA program funds.
(c) Timely payment. A school must pay a refund or a return of title
IV, HEA program funds that is due in accordance with the timeframe in
Sec. 668.22(j).
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1094)
[64 FR 59043, Nov. 1, 1999]
Sec. 682.608 [Reserved]
Sec. 682.609 Remedial actions.
(a) The Secretary may require a school to repay funds paid to other
program participants by the Secretary. The Secretary also may require a
school to purchase from the holder of a FFEL loan that portion of the
loan that is unenforceable, that the borrower was ineligible to receive,
or for which the borrower was ineligible to receive interest benefits
contrary to the school's certification, and to make arrangements
acceptable to the Secretary for reimbursement of the amounts the
Secretary will be obligated to pay to program participants respecting
that loan in the future. The repayment of funds and purchase of loans
may be required if the Secretary determines that the payment to program
participants, the unenforceability of the loan, or the disbursement of
loan amounts for which the borrower was ineligible or for which the
borrower was ineligible for interest benefits, resulted in whole or in
part from--
(1) The school's violation of a Federal statute or regulation; or
(2) The school's negligent or willful false certification.
(b) In requiring a school to repay funds to the Secretary or to
another party or to purchase loans from a holder in connection with an
audit or program review, the Secretary follows the procedures described
in 34 CFR part 668, subpart H.
(c) Notwithstanding paragraph (a) of this section, the Secretary may
waive the right to require repayment of funds or repurchase of loans by
a school if, in
[[Page 180]]
the Secretary's judgment, the best interest of the United States so
requires.
(d) The Secretary may impose a fine or take an emergency action
against a school or limit, suspend, or terminate a school's
participation in the FFEL programs, in accordance with 34 CFR part 668,
subpart G.
(e) A school shall comply with any emergency action, limitation,
suspension, or termination imposed by a guaranty agency in accordance
with the agency's standards and procedures. A school shall repay funds
to the Secretary or other party or purchase loans from a holder if a
guaranty agency determines that the school improperly received or
retained the funds in violation of a Federal law or regulation or a
guaranty agency rule or regulation.
(Authority: 20 U.S.C. 1077, 1078 , 1078-1, 1078-2, 1082, 1094)
Sec. 682.610 Administrative and fiscal requirements for schools that
participated in the FFEL Program.
(a) General. Each school shall--
(1) Establish and maintain proper administrative and fiscal
procedures and all necessary records as set forth in the regulations in
this part and in 34 CFR part 668;
(2) Follow the record retention and examination provisions in this
part and in 34 CFR 668.24; and
(3) Submit all reports required by this part and 34 CFR part 668 to
the Secretary.
(b) Loan record requirements. In addition to records required by 34
CFR part 668, for each Stafford, SLS, or PLUS loan received by or on
behalf of its students, a school must maintain--
(1) A copy of the loan certification or data electronically
submitted to the lender, that includes the amount of the loan and the
period of enrollment for which the loan was intended;
(2) The cost of attendance, estimated financial assistance, and
estimated family contribution used to calculate the loan amount;
(3) For loans delivered to the school by check, the date the school
endorsed each loan check, if required;
(4) The date or dates of delivery of the loan proceeds by the school
to the student or to the parent borrower;
(5) For loans delivered by electronic funds transfer or master
check, a copy of the borrower's required written authorization, if it
was not provided in the loan application or MPN, to deliver the initial
and subsequent disbursements of each FFEL Program loan; and
(6) Documentation of any MPN confirmation process or processes the
school may have used.
(c) Enrollment reporting process. (1) Upon receipt of an enrollment
report from the Secretary, a school must update all information included
in the report and return the report to the Secretary--
(i) In the manner and format prescribed by the Secretary; and
(ii) Within the timeframe specified by the Secretary.
(2) Unless it expects to submit its next updated enrollment report
to the Secretary within the next 60 days, a school must notify the
Secretary within 30 days after the date that the school discovers that--
(i) A loan under title IV of the Act was made to or on behalf of a
student who was enrolled or accepted for enrollment at the school, and
the student has ceased to be enrolled on at least a half-time basis or
failed to enroll on at least a half-time basis for the period for which
the loan was intended; or
(ii) A student who is enrolled at the school and who received a loan
under title IV of the Act has changed his or her permanent address.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1082, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 61
FR 60493, Nov. 27, 1996; 64 FR 58965, Nov. 1, 1999; 66 FR 34764, June
29, 2001; 78 FR 65822, Nov. 1, 2013]
Sec. 682.611 [Reserved]
Subpart G_Limitation, Suspension, or Termination of Lender or Third-
Party Servicer Eligibility and Disqualification of Lenders
Sec. 682.700 Purpose and scope.
(a) This subpart governs the limitation, suspension, or termination
by the
[[Page 181]]
Secretary of the eligibility of an otherwise eligible lender to
participate in the FFEL programs or the eligibility of a third-party
servicer to enter into a contract with an eligible lender to administer
any aspect of the lender's FFEL programs. The regulations in this
subpart apply to a lender or third-party servicer that violates any
statutory provision governing the FFEL programs or any regulations,
special arrangements, agreements, or limitations entered into under the
authority of statutes applicable to Title IV of the HEA prescribed under
the FFEL programs. These regulations apply to lenders that participate
only in a guaranty agency program, lenders that participate in the FFEL
programs, and third-party servicers that administer aspects of a
lender's FFELP portfolio. These regulations also govern the Secretary's
disqualification of a lender from participation in the FFEL programs
under section 432(h)(2) of the Act.
(b) This subpart does not apply--
(1)(i) To a determination that an organization fails to meet the
definition of ``eligible lender'' in section 435(d)(1) of the Act or the
definition of ``lender'' in Sec. 682.200, for any reason other than a
violation of the prohibitions in section 435(d)(5) of the Act; or
(ii) To a determination that an organization fails to meet the
standards in Sec. 682.416; or
(2) To an administrative action by the Department of Education based
on any alleged violation of--
(i) The Family Educational Rights and Privacy Act of 1974 (section
438 of the General Education Provisions Act), which is governed by 34
CFR part 99;
(ii) Title VI of the Civil Rights Act of 1964, which is governed by
34 CFR parts 100 and 101;
(iii) Section 504 of the Rehabilitation Act of 1973 (relating to
discrimination on the basis of handicap), which is governed by 34 CFR
part 104; or
(iv) Title IX of the Education Amendments of 1972 (relating to sex
discrimination), which is governed by 34 CFR part 106.
(c) This subpart does not supplant any rights or remedies that the
Secretary may have against participating lenders under other
authorities.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22456, Apr. 29, 1994;
78 FR 65822, Nov. 1, 2013]
Sec. 682.701 Definitions of terms used in this subpart.
The following definitions apply to terms used in this subpart:
Designated Departmental Official: An official of the Department of
Education to whom the Secretary has delegated the responsibility for
initiating and pursuing disqualification or limitation, suspension, or
termination proceedings.
Disqualification. The removal of a lender's eligibility for an
indefinite period of time by the Secretary on review of limitation,
suspension, or termination action taken against the lender by a guaranty
agency.
Limitation. The continuation of a lender's or third-party servicer's
eligibility subject to compliance with special conditions established by
agreement with the Secretary or a guaranty agency, as applicable, or
imposed as the result of a limitation or termination proceeding.
Suspension. The removal of a lender's eligibility, or a third-party
servicer's eligibility to contract with a lender or guaranty agency, for
a specified period of time or until the lender or servicer fulfills
certain requirements.
Termination. (1) The removal of a lender's eligibility for an
indefinite period of time--
(i) By a guaranty agency; or
(ii) By the Secretary, based on an action taken by the Secretary, or
a designated Departmental official under Sec. 682.706; or
(2) The removal of a third-party servicer's eligibility to contract
with a lender or guaranty agency for an indefinite period of time by the
Secretary based on an action taken by the Secretary, or a designated
Departmental official under Sec. 682.706.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994;
78 FR 65822, Nov. 1, 2013]
[[Page 182]]
Sec. 682.702 Effect on participation.
(a) Limitation, suspension, or termination proceedings by the
Secretary do not affect a lender's responsibilities or rights to
benefits and claim payments that are based on the lender's prior
participation in the program, except as provided in Sec. 682.709.
(b) A limitation imposes on a lender--
(1) A limit on the number or total amount of loans that a lender may
purchase or hold under the FFEL Program; or
(2) Other reasonable requirements or conditions, including those
described in Sec. 682.709.
(c) A limitation imposes on a third-party servicer--
(1) A limit on the number of loans or accounts or total amount of
loans that the servicer may service;
(2) A limit on the number of loans or accounts or total amount of
loans that the servicer is administering under its contract with a
lender or guaranty agency; or
(3) Other reasonable requirements or conditions, including those
described in Sec. 682.709.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994;
78 FR 65822, Nov. 1, 2013]
Sec. 682.703 Informal compliance procedure.
(a) The Secretary may use the informal compliance procedure in
paragraph (b) of this section if the Secretary receives a complaint or
other reliable information indicating that a lender or third-party
servicer may be in violation of applicable laws, regulations, special
arrangements, agreements, or limitations entered into under the
authority of statutes applicable to Title IV of the HEA.
(b) Under the informal compliance procedure, the Secretary gives the
lender or servicer a reasonable opportunity to--
(1) Respond to the complaint or information; and
(2) Show that the violation has been corrected or submit an
acceptable plan for correcting the violation and preventing its
recurrence.
(c) The Secretary does not delay limitation, suspension, or
termination procedures during the informal compliance procedure if--
(1) The delay would harm the FFEL programs; or
(2) The informal compliance procedure will not result in correction
of the alleged violation.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994]
Sec. 682.704 Emergency action.
(a) The Secretary, or a designated Departmental official, may take
emergency action to withhold payment of interest benefits and special
allowance to a lender if the Secretary--
(1) Receives reliable information that the lender or a third-party
servicer with which the lender contracts is in violation of applicable
laws, regulations, special arrangements, agreements, or limitations
entered into under the authority of statutes applicable to Title IV of
the HEA pertaining to the lender's portfolio of loans;
(2) Determines that immediate action is necessary to prevent the
likelihood of substantial losses by the Federal Government, parent
borrowers, or students; and
(3) Determines that the likelihood of loss exceeds the importance of
following the procedures for limitation, suspension, or termination.
(b) The Secretary begins an emergency action by notifying the lender
or third-party servicer, by certified mail, return receipt requested, of
the action and the basis for the action.
(c) The action becomes effective on the date the notice is mailed to
the lender or third-party servicer.
(d)(1) An emergency action does not exceed 30 days unless a
limitation, suspension, or termination proceeding is begun before that
time expires.
(2) If a limitation, suspension, or termination proceeding is begun
before the expiration of the 30-day period--
(i) The emergency action may be extended until completion of the
proceeding, including any appeal to the Secretary; and
(ii) Upon the written request of the lender or third-party servicer,
the Secretary may provide the lender or
[[Page 183]]
servicer with an opportunity to demonstrate that the emergency action is
unwarranted.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994;
78 FR 65822, Nov. 1, 2013]
Sec. 682.705 Suspension proceedings.
(a) Scope. (1) A suspension by the Secretary removes a lender's
eligibility under the FFEL programs or a third-party servicer's ability
to enter into contracts with eligible lenders, and the Secretary does
not guarantee or reinsure a new loan serviced by the servicer during a
period not to exceed 60 days from the date the suspension becomes
effective, unless--
(i) The lender or servicer and the Secretary agree to an extension
of the suspension period, if the lender or third-party servicer has not
requested a hearing; or
(ii) The Secretary begins a limitation or a termination proceeding.
(2) If the Secretary begins a limitation or a termination proceeding
before the suspension period ends, the Secretary may extend the
suspension period until the completion of that proceeding, including any
appeal to the Secretary.
(b) Notice. (1) The Secretary, or a designated Departmental
official, begins a suspension proceeding by sending the lender or
servicer a notice by certified mail with return receipt requested.
(2) The notice--
(i) Informs the lender or servicer of the Secretary's intent to
suspend the lender's or servicer's eligibility for a period not to
exceed 60 days;
(ii) Describes the consequences of a suspension;
(iii) Identifies the alleged violations on which the proposed
suspension is based;
(iv) States the proposed date the suspension becomes effective,
which is at least 20 days after the date of mailing of the notice;
(v) Informs the lender or servicer that the suspension will not take
effect on the proposed date if the Secretary receives at least five days
prior to that date a request for an oral hearing or written material
showing why the suspension should not take effect; and
(vi) Asks the lender or servicer to correct voluntarily any alleged
violations.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[59 FR 22457, Apr. 29, 1994, as amended at 60 FR 33058, June 26, 1995;
66 FR 34764, June 29, 2001; 68 FR 66615, Nov. 26, 2003; 72 FR 62009,
Nov. 1, 2007; 78 FR 65822, Nov. 1, 2013]
Sec. 682.706 Limitation or termination proceedings.
(a) Notice. (1) The Secretary, or a designated Departmental
official, begins a limitation or termination proceeding, whether a
suspension proceeding has begun, by sending the lender or third-party
servicer a notice by certified mail with return receipt requested.
(2) The notice--
(i) Informs the lender or servicer of the Secretary's intent to
limit or terminate the lender's or servicer's eligibility;
(ii) Describes the consequences of a limitation or termination;
(iii) Identifies the alleged violations on which the proposed
limitation or termination is based;
(iv) States the limits which may be imposed, in the case of a
limitation proceeding;
(v) States the proposed date the limitation or termination becomes
effective, which is at least 20 days after the date of mailing of the
notice;
(vi) Informs the lender or servicer that the limitation or
termination will not take effect on the proposed date if the Secretary
receives, at least five days prior to that date, a request for an oral
hearing or written material showing why the limitation or termination
should not take effect;
(vii) Asks the lender or servicer to correct voluntarily any alleged
violations; and
(viii) Notifies the lender or servicer that the Secretary may
collect any amount owed by means of offset against amounts owed to the
lender by the Department and other Federal agencies.
(b) Hearing. (1) If the lender or servicer does not request an oral
hearing but submits written material, the Secretary, or a designated
Departmental official, considers the material and--
[[Page 184]]
(i) Dismisses the proposed limitation or termination; or
(ii) Notifies the lender or servicer of the date the limitation or
termination becomes effective.
(2) If the lender or servicer requests a hearing within the time
specified in paragraph (a)(2)(vi) of this section, the Secretary
schedules the date and place of the hearing. The date is at least 15
days after receipt of the request from the lender or servicer. No
proposed limitation or termination takes effect until a hearing is held.
(3) The hearing is conducted by a presiding officer who--
(i) Ensures that a written record of the hearing is made;
(ii) Considers relevant written material presented before the
hearing and other relevant evidence presented during the hearing; and
(iii) Issues an initial decision, based on findings of fact and
conclusions of law, that may limit or terminate the lender's or
servicer's eligibility if the presiding officer is persuaded that the
limitation or termination is warranted by the evidence.
(4) The formal rules of evidence do not apply, and no discovery, as
provided in the Federal Rules of Civil Procedure (28 U.S.C. appendix),
is required.
(5) The presiding officer shall base findings of fact only on
evidence presented at or before the hearing and matters given official
notice.
(6) If a termination action is brought against a lender or third-
party servicer and the presiding officer concludes that a limitation is
more appropriate, the presiding officer may issue a decision imposing
one or more limitations on a lender or third-party servicer rather than
terminating the lender's or servicer's eligibility.
(7) In a termination action against a lender or third-party servicer
based on a debarment under Executive Order 12549 or under the Federal
Acquisition Regulation (FAR), 48 CFR part 9, subpart 9.4 that does not
meet the standards described in 2 CFR 3485.612(d), the presiding
official finds that the debarment constitutes prima facie evidence that
cause for debarment and termination under this subpart exists.
(8) The initial decision of the presiding officer is mailed to the
lender or servicer.
(9) Any time schedule specified in this section may be shortened
with the approval of the presiding officer and the consent of the lender
or servicer and the Secretary or designated Departmental official.
(10) The presiding officer's initial decision automatically becomes
the Secretary's final decision 20 days after it is issued and received
by both parties unless the lender, servicer, or designated Departmental
official appeals the decision to the Secretary within this period.
(c) Notwithstanding the other provisions of this section, if a
lender or a lender's owner or officer or third-party servicer or
servicer's owner or officer, respectively, is convicted of or pled nolo
contendere or guilty to a crime involving the unlawful acquisition, use,
or expenditure of FFEL program funds, that conviction or guilty plea is
grounds for terminating the lender's or servicer's eligibility,
respectively, to participate in the FFEL programs.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[59 FR 22458, Apr. 29, 1994, as amended at 60 FR 33058, June 25, 1995;
72 FR 62009, Nov. 1, 2007; 77 FR 18679, Mar. 28, 2012; 78 FR 65822, Nov.
1, 2013]
Sec. 682.707 Appeals in a limitation or termination proceeding.
(a) If the lender, third-party servicer, or designated Departmental
official appeals the initial decision of the presiding officer in
accordance with Sec. 682.706(b)(10)--
(1) An appeal is made to the Secretary by submitting to the
Secretary and the opposing party within 15 days of the date of the
appealing party's receipt of the presiding officer's decision, a brief
or other written material explaining why the decision of the presiding
officer should be overturned or modified; and
(2) The opposing party shall submit its brief or other written
material to the Secretary and the appealing party within 15 days of its
receipt of the brief or written material of the appealing party.
(b) The Secretary issues a final decision affirming, modifying, or
reversing
[[Page 185]]
the initial decision, including a statement of the reasons for the
Secretary's decision.
(c) Any party submitting material to the Secretary shall provide a
copy to each party that participates in the hearing.
(d) If the presiding officer's initial decision would limit or
terminate the lender's or servicer's eligibility, it does not take
effect pending the appeal unless the Secretary determines that a stay of
the date it becomes effective would seriously and adversely affect the
FFEL programs or student or parent borrowers.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22458, Apr. 29, 1994;
66 FR 34765, June 29, 2001]
Sec. 682.708 Evidence of mailing and receipt dates.
(a) All mailing dates and receipt dates referred to in this subpart
must be substantiated by the original receipts from the U.S. Postal
Service.
(b) If a lender or third-party servicer refuses to accept a notice
mailed under this subpart, the Secretary considers the notice as being
received on the date that the lender or servicer refuses to accept the
notice.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22459, Apr. 29, 1994]
Sec. 682.709 Reimbursements, refunds, and offsets.
(a) As part of a limitation or termination proceeding, the
Secretary, or a designated Departmental official, may require a lender
or third-party servicer to take reasonable corrective action to remedy a
violation of applicable laws, regulations, special arrangements,
agreements, or limitations entered into under the authority of statutes
applicable to Title IV of the HEA.
(b) The corrective action may include payment to the Secretary or
recipients designated by the Secretary of any funds, and any interest
thereon, that the lender, or, in the case of a third-party servicer, the
servicer or the lender that has a contract with a third-party servicer,
improperly received, withheld, disbursed, or caused to be disbursed. A
third-party servicer may be held liable up to the amounts specified in
Sec. 682.413(a)(2).
(c) If a final decision requires a lender, a lender that has a
contract with a third-party servicer, or a third-party servicer to
reimburse or make any payment to the Secretary, the Secretary may,
without further notice or opportunity for a hearing, proceed to offset
or arrange for another Federal agency to offset the amount due against
any interest benefits, special allowance, or other payments due to the
lender, the lender that has a contract with the third-party servicer, or
the third-party servicer. A third-party servicer may be held liable up
to the amounts specified in Sec. 682.413(a)(2).
(d) In any action under this part based on a violation of the
prohibitions in section 435(d)(5) of the Act, if the Secretary, the
designated Department official, or the hearing official finds that the
lender provided or offered the payments or activities described in
paragraph (5)(i) of the definition of ``lender'' in Sec. 682.200(b), the
Secretary or the official applies a rebuttable presumption that the
payments or activities were offered or provided to secure applications
for FFEL loans. To reverse the presumption, the lender must present
evidence that the activities or payments were provided for a reason
unrelated to securing applications for FFEL loans or securing FFEL loan
volume.
(Authority: 20 U.S.C. 1080, 1082, 1094)
[59 FR 22459, Apr. 29, 1994, as amended at 78 FR 65822, Nov. 1, 2013]
Sec. 682.710 Removal of limitation.
(a) A lender or third-party servicer may request removal of a
limitation imposed by the Secretary in accordance with the regulations
in this subpart at any time more than 12 months after the date the
limitation becomes effective.
(b) The request must be in writing and must show that the lender or
servicer has corrected any violations on which the limitation was based.
(c) Within 60 days after receiving the request, the Secretary--
(1) Grants the request;
(2) Denies the request; or
[[Page 186]]
(3) Grants the request subject to other limitations.
(d)(1) If the Secretary denies the request or establishes other
limitations, the lender or servicer, upon request, is given an
opportunity to show why all limitations should be removed.
(2) A lender or third-party servicer may continue to participate in
the FFEL programs, subject to any limitation imposed by the Secretary
under paragraph (c)(3) of this section, pending a decision by the
Secretary on a request under paragraph (d)(1) of this section.
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22459, Apr. 29, 1994]
Sec. 682.711 Reinstatement after termination.
(a) A lender or third-party servicer whose eligibility has been
terminated by the Secretary in accordance with the procedures of this
subpart may request reinstatement of its eligibility after the later
of--
(1) Eighteen months from the effective date of the termination; or
(2) The expiration of the period of debarment under Executive Order
12459 or the Federal Acquisition Regulation (FAR), 48 CFR part 9,
subpart 9.4.
(b) The request must be in writing and must show that--
(1) The lender or servicer has corrected any violations on which the
termination was based; and
(2) The lender or servicer meets all requirements for eligibility.
(c) Within 60 days after receiving a request for reinstatement, the
Secretary--
(1) Grants the request;
(2) Denies the request; or
(3) Grants the request subject to limitations.
(d)(1) If the Secretary denies the lender's or servicer's request or
allows reinstatement subject to limitations, the lender or servicer,
upon request, is given an opportunity to show why its eligibility should
be reinstated and all limitations removed.
(2) A lender or third-party servicer whose eligibility to
participate in the FFEL programs is reinstated subject to limitations
imposed by the Secretary pursuant to paragraph (c)(3) of this section,
may participate in those programs, subject to those limitations, pending
a decision by the Secretary on a request under paragraph (d)(1) of this
section.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59
FR 22459, Apr. 29, 1994; 59 FR 34964, July 7, 1994; 60 FR 33058, June
26, 1995; 64 FR 58965, Nov. 1, 1999; 78 FR 65822, Nov. 1, 2013]
Sec. 682.712 Disqualification review of limitation, suspension, and
termination actions taken by guarantee agencies against lenders.
(a) The Secretary reviews a limitation, suspension, or termination
action taken by a guaranty agency against a lender participating in the
FFEL programs to determine if national disqualification is appropriate.
Upon completion of the Secretary's review, the Secretary notifies the
guaranty agency and the lender of the Secretary's decision by mail.
(b) The Secretary disqualifies a lender from participation in the
FFEL programs if--
(1) The lender waives review by the Secretary; or
(2) The Secretary conducts the review and determines that the
limitation, suspension, or termination was imposed in accordance with
section 428(b)(1)(U) of the Act.
(c)(1) Disqualification by the Secretary continues until the
Secretary is satisfied that--
(i) The lender has corrected the failure that led to the limitation,
suspension, or termination; and
(ii) There are reasonable assurances that the lender will comply
with the requirements of the FFEL programs in the future.
(2) Revocation of disqualification by the Secretary does not remove
any limitation, suspension, or termination imposed by the agency whose
action resulted in the disqualification.
(d) A guaranty agency shall refer a limitation, suspension, or
termination action that it takes against a lender to the Secretary
within 30 days of its final decision to limit, suspend, or terminate
[[Page 187]]
the lender's eligibility to participate in the agency's program.
(e) The Secretary reviews an agency's limitation, suspension, or
termination of a lender's eligibility only when the guaranty agency's
action is final, e.g, the lender is not entitled to any further appeals
within the guaranty agency. A subsequent court challenge to an agency's
action does not by itself affect the timing of the Secretary's review.
(f) The guaranty agency's notice to the Secretary regarding a
termination action must include a certified copy of the administrative
record compiled by the agency with regard to the action. The record must
include certified copies of the following documents:
(1) The guaranty agency's letter initiating the action.
(2) The lender's response.
(3) The transcript of the agency's hearing.
(4) The decision of the agency's hearing officer.
(5) The decision of the agency on appeal from the hearing officer's
decision, if any.
(6) The regulations and written procedures of the agency under which
the action was taken.
(7) The audit or lender review report or documented basis that led
to the action.
(8) All other documents relevant to the action.
(g) The guaranty agency's referral notice to the Secretary regarding
a limitation or suspension action must include--
(1) The documents described in paragraph (f) of this section; and
(2) Documents describing and substantiating the existence of one or
more of the circumstances described in paragraph (i) of this section.
(h)(1) Within 60 days of the Secretary's receipt of a referral
notice described in paragraph (f) or (g) of this section, the Secretary
makes an initial assessment, based on the agency's record, as to whether
the agency's action appears to comply with section 428(b)(1)(U) of the
Act.
(2) In the case of a referral notice described in paragraph (g) of
this section, the Secretary also determines whether one or more of the
circumstances described in paragraph (i) of this section exist.
(3) If the Secretary concludes that the agency's action appears to
comply with section 428(b)(1)(U) of the Act and, if applicable, one or
more of the circumstances described in paragraph (i) of this section
exist, the Secretary notifies the lender that the Secretary will review
the guaranty agency's action to determine whether to disqualify the
lender from further participation in the FFEL programs and affords the
lender an opportunity--
(i) To waive the review and be disqualified immediately; or
(ii) To request a review.
(i) In the case of an action by an agency that limits or suspends a
lender's eligibility to participate in the agency's program, the agency
shall provide the Secretary with a referral as described in paragraph
(g) of this section only if--
(1) The lender has not corrected the violation. A violation is
corrected if, among other things, the lender has satisfied fully all
liabilities incurred by the lender as a result of the violation,
including its liability to the Secretary, or the lender has arranged to
satisfy those liabilities in a manner acceptable to the parties to whom
the liabilities are owed;
(2) The lender has not provided satisfactory assurances to the
agency of future compliance with program requirements; or
(3) The guaranty agency determines that special circumstances
warrant disqualification of the lender from the FFEL programs for a
significant period, notwithstanding the agency's decision not to
terminate the lender's eligibility to participate in the agency's
program.
(Approved by the Office of Management and Budget under control number
1845-0020)
(Authority: 20 U.S.C. 1082)
[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 64
FR 58965, Nov. 1, 1999; 78 FR 65822, Nov. 1, 2013]
Sec. 682.713 [Reserved]
Subpart H [Reserved]
[[Page 188]]
Sec. Appendixes A-C to Part 682 [Reserved]
Sec. Appendix D to Part 682--Policy for Waiving the Secretary's Right To
Recover or Refuse To Pay Interest Benefits, Special Allowance, and
Reinsurance on Stafford, Plus, Supplemental Loans for Students, and
Consolidation Program Loans Involving Lenders' Violations of Federal
Regulations Pertaining to Due Diligence in Collection or Timely Filing
of Claims [Bulletin 88-G-138]
Note: The following is a reprint of Bulletin 88-G-138, issued on
March 11, 1988, with modifications made to reflect changes in the
program regulations. For a loan that has lost reinsurance prior to
December 1, 1992, this policy applies only through November 30, 1995.
For a loan that loses reinsurance on or after December 1, 1992, this
policy applies until 3 years after the default claim filing deadline.
For the purpose of determining the 3-year deadline, reinsurance is lost
on the later of (a) 3 years from the last date the claim could have been
filed for claim payment with the guaranty agency for a claim that was
not filed; or (b) 3 years from the date the guaranty agency rejected the
claim, for a claim that was filed. These deadlines are extended by
periods during which collection activities are suspended due to the
filing of a bankruptcy petition.
Introduction
(1) This letter sets forth the circumstances under which the
Secretary, pursuant to sections 432(a)(5) and (6) of the Higher
Education Act of 1965 and 34 CFR 682.406(b) and 682.413(f), will waive
certain of the Secretary's rights and claims with respect to Stafford
Loans, PLUS, Supplemental Loans for Students (SLS), and Consolidation
Program loans made under a guaranty agency program that involve
violations of Federal regulations pertaining to due diligence in
collection or timely filing. (These programs are collectively referred
to in this letter as the FFEL Program.) This policy applies to due
diligence violations on loans for which the first day of delinquency
occurred on or after March 10, 1987 (the effective date of the November
10, 1986 due diligence regulations) and to timely filing violations
occurring on or after December 26, 1986, whether or not the affected
loans have been submitted as claims to the guaranty agency.
(2) The Secretary has been implementing a variety of regulatory and
administrative actions to minimize defaults in the FFEL Program. As a
part of this effort, the Secretary published final regulations on
November 10, 1986, requiring lenders and guaranty agencies to undertake
specific due diligence activities to collect delinquent and defaulted
loans, and establishing deadlines for the filing of claims by lenders
with guaranty agencies. In recognition of the time required for agencies
and lenders to modify their internal procedures, the Secretary delayed
for four months the date by which lenders were required to comply with
the new due diligence requirements. Thus, Sec. 682.411 of the
regulations, which established minimum due diligence procedures that a
lender must follow in order for a guaranty agency to receive reinsurance
on a loan, became effective for loans for which the first day of
delinquency occurred on or after March 10, 1987. The regulations make
clear that compliance with these minimum requirements, and with the new
timely filing deadlines, is a condition for an agency's receiving or
retaining reinsurance payments made by the Secretary on a loan. See 34
CFR 682.406(a)(3), (a)(5), (a)(6), and 682.413(b). The regulations also
specify that a lender must comply with Sec. 682.411 and with the
applicable filing deadline as a condition for its right to receive or
retain interest benefits and special allowance on a loan for certain
periods. See 34 CFR 682.300(b)(2)(vii), 682.302(d)(1)(iv),
682.413(a)(1).
(3) The Department has received inquiries regarding the procedures
by which a lender may cure a violation of Sec. 682.411 regarding
diligent loan collection, or of the 90-day deadline for the filing of
default claims found in Sec. 682.406(a)(3) and (a)(5), in order to
reinstate the agency's right to reinsurance and the lender's right to
interest benefits and special allowance. Preliminarily, please note
that, absent an exercise of the Secretary's waiver authority, a guaranty
agency may not receive or retain reinsurance payments on a loan on which
the lender has violated the Federal due diligence or timely filing
requirements, even if the lender has followed a cure procedure
established by the agency. Under Secs. 682.406(b) and 682.413(f), the
Secretary--not the guaranty agency--decides whether to reinstate
reinsurance coverage on a loan involving such a violation or any other
violation of Federal regulations. A lender's violation of a guaranty
agency's requirement that affects the agency's guarantee coverage also
affects reinsurance coverage. See Secs. 682.406(a)(7) and 682.413(b). As
Secs. 682.406(a)(7) and 682.413(b) make clear, a guaranty agency's cure
procedures are relevant to reinsurance coverage only insofar as they
allow for cure of violations of requirements established by the agency
affecting the loan insurance it provides to lenders. In addition, all
those requirements must be submitted to the Secretary for review and
approval under 34 CFR 682.401(c).
[[Page 189]]
(4) References throughout this letter to ``due diligence and timely
filing'' rules, requirements, and violations should be understood to
mean only the Federal rules cited above, unless the context clearly
requires otherwise.
A. Scope
This letter outlines the Secretary's waiver policy regarding certain
violations of Federal due diligence or timely filing requirements on a
loan insured by a guaranty agency. Unless your agency receives
notification to the contrary, or the lender's violation involves fraud
or other intentional misconduct, you may treat as reinsured any
otherwise reinsured loan involving such a violation that has been cured
in accordance with this letter.
B. Duty of a Guaranty Agency To Enforce Its Standards
As noted above, a lender's violation of a guaranty agency's
requirement that affects the agency's guarantee coverage also affects
reinsurance coverage. Thus, as a general rule, an agency that fails to
enforce such a requirement and pays a default claim involving a
violation is not eligible to receive reinsurance on the underlying loan.
However, in light of the waiver policy outlined below, which provides
more stringent cure procedures for violations occurring on or after May
1, 1988 than for pre-May 1, 1988 violations, some guaranty agencies with
more stringent policies than the policy outlined below for the pre-May 1
violations have indicated that they wish to relax their own policies for
violations of agency rules during that period. While the Secretary does
not encourage any agency to do so, the Secretary will permit an agency
to take either of the following approaches to its enforcement of its own
due diligence and timely filing rules for violations occurring before
May 1, 1988.
(1) The agency may continue to enforce its rules, even if they
result in the denial of guarantee coverage by the agency on otherwise
reinsurable loans; or
(2) The agency may decline to enforce its rules as to any loan that
would be reinsured under the retrospective waiver policy outlined below.
In other words, for violations of a guaranty agency's due diligence and
timely filing rules occurring before May 1, 1988, a guaranty agency is
authorized, but not required, to retroactively revise its own due
diligence and timely filing standards to treat as guaranteed any loan
amount that is reinsured under the retrospective enforcement policy
outlined in section I.C.1. However, for any violation of an agency's due
diligence or timely filing rules occurring on or after May 1, 1988, the
agency must resume enforcing those rules in accordance with their terms,
in order to receive reinsurance payments on the underlying loan. For
these post-April 30 violations, and for any other violation of an
agency's rule affecting its guarantee coverage, the Secretary will treat
as reinsured all loans on which the agency has engaged in, and
documented, a case-by-case exercise of reasonable discretion allowing
for guarantee coverage to be continued or reinstated notwithstanding the
violation. But any agency that otherwise fails, or refuses, to enforce
such a rule does so without the benefit of reinsurance coverage on the
affected loans, and the lenders continue to be ineligible for interest
benefits and special allowance thereon.
C. Due Diligence
Under 34 CFR 682.200, default on a FFEL Program loan occurs when a
borrower fails to make a payment when due, provided this failure
persists for 270 days for loans payable in monthly installments, or for
330 days for loans payable in less frequent installments. The 270/330-
day default period applies regardless of whether payments were missed
consecutively or intermittently. For example, if the borrower, on a loan
payable in monthly installments, makes his January 1st payment on time,
his February 1st payment two months late (April 1st), his March 1st
payment 3 months late (June 1st), and makes no further payments, the
delinquency period begins on February 2nd, with the first delinquency,
and default occurs on December 27th, when the April payment becomes 270
days past due. The lender must treat the payment made on April 1st as
the February 1st payment, since the February 1st payment had not been
made prior to that time. Similarly, the lender must treat the payment
made on June 1st as the March 1st payment, since the March payment had
not been made prior to that time.
Note: Lenders are strongly encouraged to exercise forbearance, prior
to default, for the benefit of borrowers who have missed payments
intermittently but have otherwise indicated willingness to repay their
loans. See 34 CFR 682.211. The forbearance process helps to reduce the
incidence of default, and serves to emphasize for the borrower the
importance of compliance with the repayment obligation.
D. Timely Filing
(1) The 90-day filing period applicable to FFEL Program default
claims is described in 34 CFR 682.406(a)(5). The 90-day filing period
begins at the end of the 270/330-day default period. The lender
ordinarily must file a default claim on a loan in default by the end of
the filing period. However, the lender may, but need not, file a claim
on that loan before the 360th day of delinquency (270-day default period
plus 90-day filing period) if the borrower brings the account less than
270 days
[[Page 190]]
delinquent before the 360th day. Thus, in the above example, if the
borrower makes the April 1st payment on December 28th, that payment
makes the loan 241 days delinquent, and the lender may, but need not,
file a default claim on the loan at that time. If, however, the loan
again becomes 270 days delinquent, the lender must file a default claim
within 90 days thereafter (unless the loan is again brought to less than
270 days delinquent prior to the end of that 90-day period). In other
words, the Secretary will permit a lender to treat payments made during
the filing period as curing the default if those payments are sufficient
to make the loan less than 270 days delinquent.
(2) Section I of this letter outlines the Secretary's waiver policy
for due diligence and timely filing violations. As noted above, to the
extent that it results in the imposition of a lesser sanction than that
available to the Secretary by statute or regulation, this policy
reflects the exercise of the Secretary's authority to waive the
Secretary's rights and claims in this area. Section II discusses the
issue of the due date of the first payment on a loan and the application
of the waiver policy to that issue. Section III provides guidance on
several issues related to due diligence and timely filing as to which
clarification has been requested by some program participants.
I. Waiver Policy
A. Definitions
The following definitions apply to terms used throughout this
letter:
Full payment means payment by the borrower, or another person (other
than the lender) on the borrower's behalf, in an amount at least as
great as the monthly payment amount required under the existing terms of
the loan, exclusive of any forbearance agreement in force at the time of
the default. (For example, if the original repayment schedule or
agreement called for payments of $50 per month, but a forbearance
agreement was in effect at the time of default that allowed the borrower
to pay $25 per month for a specified time, and the borrower defaulted in
making the reduced payments, a full payment would be $50, or two $25
payments in accordance with the original repayment schedule or
agreement.) In the case of a payment made by cash, money order, or other
means that do not identify the payor that is received by a lender after
the date of this letter, that payment may constitute a full payment only
if a senior officer of the lender or servicing agent certifies that the
payment was not made by or on behalf of the lender or servicing agent.
Earliest unexcused violation means:
(a) In cases when reinsurance is lost due to a failure to timely
establish a first payment due date, the earliest unexcused violation
would be the 46th day after the date the first payment due date should
have been established.
(b) In cases when reinsurance is lost due to a gap of 46 days, the
earliest unexcused violation date would be the 46th day following the
last collection activity.
(c) In cases when reinsurance is lost due to three or more due
diligence violations of 6 days or more, the earliest unexcused violation
would be the day after the date of default.
(d) In cases when reinsurance is lost due to a timely filing
violation, the earliest unexcused violation would be the day after the
filing deadline.
Reinstatement with respect to reinsurance coverage means the
reinstatement of the guaranty agency's right to receive reinsurance
payments on the loan after the date of reinstatement. Upon reinstatement
of reinsurance, the borrower regains the right to receive forbearance or
deferments, as appropriate. Reinstatement with respect to reinsurance on
a loan also includes reinstatement of the lender's right to receive
interest and special allowance payments on that loan.
Gap in collection activity on a loan means:
(a) The period between the initial delinquency and the first
collection activity;
(b) The period between collection activities (a request for
preclaims assistance is considered a collection activity);
(c) The period between the last collection activity and default; or
(d) The period between the date a lender discovers a borrower has
``skipped'' and the lender's first skip-tracing activity.
Note: The concept of ``gap'' is used herein simply as one measure of
collection activity. This definition applies to loans subject to the
FFEL and PLUS programs regulations published on or after November 10,
1986. For those loans, not all gaps are violations of the due diligence
rules.
Violation with respect to the due diligence requirements in
Sec. 682.411 means the failure to timely complete a required diligent
phone contact effort, the failure to timely send a required letter
(including a request for preclaims assistance), or the failure to timely
engage in a required skip-tracing activity. If during the delinquency
period a gap of more than 45 days occurs (more than 60 days for loans
with a transfer), the lender must satisfy the requirement outlined in
I.D.1. for reinsurance to be reinstated. The day after the 45-day gap
(or 60 for loans with a transfer) will be considered the date that the
violation occurred.
Transfer means any action, including, but not limited to, the sale
of the loan, that results in a change in the system used to monitor or
conduct collection activity on a loan from one system to another.
[[Page 191]]
B. General
1. Resumption of Interest and Special Allowance Billing on Loans
Involving Due Diligence or Timely Filing Violations. For any loan on
which a cure is required under this letter in order for the agency to
receive any reinsurance payment, the lender may resume billing for
interest and special allowance on the loan only for periods following
its completion of the required cure procedure.
2. Reservation of the Secretary's Right to Strict Enforcement. While
this letter describes the Secretary's general waiver policy, the
Secretary retains the option of refusing to permit or recognize cures,
or of insisting on strict enforcement of the remedies established by
statute or regulation, in cases where, in the Secretary's judgment, a
lender has committed an excessive number of severe violations of due
diligence or timely filing rules and in cases where the best interests
of the United States otherwise require strict enforcement. More
generally, this bulletin states the Secretary's general policy and is
not intended to limit in any way the authority and discretion afforded
the Secretary by statute or regulation.
3. Interest, Special Allowance, and Reinsurance Repayment Required
as a Condition for Exercise of the Secretary's Waiver Authority. The
Secretary's waiver of the right to recover or refuse to pay reinsurance,
interest benefits, or special allowance payments, and recognition of
cures for due diligence and timely filing violations, are conditioned on
the following:
a. The guaranty agency and lender must ensure that the lender repays
all interest benefits and special allowance received on loans involving
violations occurring prior to May 1, 1988, for which the lender is
ineligible under the waiver policy for the ``retrospective period''
described in section I.C.1., or under the waiver policy for timely
filing violations described in section I.E.1., by an adjustment to one
of the next three quarterly billings for interest benefits and special
allowance submitted by the lender in a timely manner after May 1, 1988.
The guaranty agency's responsibility in this regard is satisfied by
receipt of a certification from the lender that this repayment has been
made in full.
b. The guaranty agency, on or before October 1, 1988, must repay all
reinsurance received on loans involving violations occurring prior to
May 1, 1988, for which the agency is ineligible under the waiver policy
for the ``retrospective period'' described in section I.C.1., or under
the waiver policy for timely filing violations described in section
I.E.1. Pending completion of the repayment described above, a lender or
guaranty agency may submit billings to the Secretary on loans that are
eligible for reinsurance under the waiver policy in this letter until it
learns that repayment in full will not be made, or until the deadline
for a repayment has passed without it being made, whichever is earlier.
Of course, a lender or guaranty agency is prohibited from billing the
Secretary for program payments on any loan amount that is not eligible
for reinsurance under the waiver policy outlined in this letter. In
addition to the repayments required above, any amounts received in the
future in violation of this prohibition must immediately be repaid to
the Secretary.
4. Applicability of the Waiver Policy to Particular Classes of
Loans. The policy outlined in this letter applies only to a loan for
which the first day of the 180/240-day or 270/330-day default period (as
applicable) that ended with default by the borrower occurred on or after
March 10, 1987, or, in the case of a timely filing violation, December
26, 1986, and that involves violations only of the due diligence or
timely filing requirements or both. For a loan that has lost reinsurance
prior to December 1, 1992, this policy applies only through November 30,
1995. For a loan that loses reinsurance on or after December 1, 1992,
this policy applies until 3 years after the default claim filing
deadline.
5. Excuse of Certain Due Diligence Violations. Except as noted in
section II, if a loan has due diligence violations but was later cured
and brought current, those violations will not be considered in
determining whether a loan was serviced in accordance with 34 CFR
682.411. Guarantors must review the due diligence for the 180/240 or
270/330-day period (as applicable) prior to the default date ensuring
the due date of the first payment not later made is the correct payment
due date for the borrower.
6. Excuse of Timely Filing Violations Due to Performance of a
Guaranty Agency's Cure Procedures. If, prior to May 1, 1988, and prior
to the filing deadline, a lender commenced the performance of collection
activities specifically required by the guaranty agency to cure a due
diligence violation on a loan, the Secretary will excuse the lender's
timely filing violation if the lender completes the additional
activities within the time period permitted by the guaranty agency and
files a default claim on the loan not more than 45 days after completing
the additional activities.
7. Treatment of Accrued Interest on ``Cured'' Claims. For any loan
involving any violation of the due diligence or timely filing rules for
which a ``cure'' is required under section I.C. or I.E., for the agency
to receive a reinsurance payment, the Secretary will not reimburse the
guaranty agency for any unpaid interest accruing after the date of the
earliest unexcused violation occurring after the last payment received
before the cure is accomplished, and prior to the date of reinstatement
of reinsurance coverage. The lender may capitalize unpaid interest
accruing on
[[Page 192]]
the loan from the date of the earliest unexcused violation to the date
of the reinstatement of reinsurance coverage. However, if the agency
later files a claim for reinsurance on that loan, the agency must deduct
this capitalized interest from the amount of the claim. Some cures will
not reinstate coverage. For treatment of accrued interest in those
cases, see section I.E.1.c.
C. Waiver Policy for Violations of the Federal Due Diligence in
Collection Requirements (34 CFR 682.411)
A violation of the due diligence in collection rules occurs when a
lender fails to meet the requirements found in 34 CFR 682.411. However,
if a lender makes all required calls and sends all required letters
during any of the delinquency periods described in that section, the
lender is considered to be in compliance with that section for that
period, even if the letters were sent before the calls were made. The
special provisions for transfers apply whenever the violation(s) and, if
applicable, the gap, were due to a transfer, as defined in section I.A.
1. Retrospective Period. For one or more due diligence violations
occurring during the period March 10, 1987-April 30, 1988--
a. There will be no reduction or recovery by the Secretary of
payments to the lender or guaranty agency if no gap of 46 days or more
(61 days or more for a transfer) exists.
b. If a gap of 46-60 days (61-75 days for a transfer) exists,
principal will be reinsured, but accrued interest, interest benefits,
and special allowance otherwise payable by the Secretary for the
delinquency period are limited to amounts accruing through the date of
default.
c. If a gap of 61 days or more (76 days or more for a transfer)
exists, the borrower must be located after the gap, either by the agency
or the lender, in order for reinsurance on the loan to be reinstated.
(See section I.E.1.d., for a description of acceptable evidence of
location.) In addition, if the loan is held by the lender or after March
15, 1988, the lender must follow the steps described in section I.E.1.,
or receive a full payment or a new signed repayment agreement, in order
for the loan to again be eligible for reinsurance. The lender must repay
all interest benefits and special allowance received for the period
beginning with its earliest unexcused violation, occurring after the
last payment received before the cure is accomplished, and ending with
the date, if any, that reinsurance on the loan is reinstated.
2. Prospective Period. For due diligence violations occurring on or
after May 1, 1988 based on due dates prior to October 6, 1998--
a. There will be no reduction or recovery by the Secretary of
payments to the lender or guaranty agency if there is no violation of
Federal requirements of 6 days or more (21 days or more for a transfer.)
b. If there exist not more than two violations of 6 days or more
each (21 days or more for a transfer), and no gap of 46 days or more (61
days or more for a transfer) exists, principal will be reinsured, but
accrued interest, interest benefits, and special allowance otherwise
payable by the Secretary for the delinquency period will be limited to
amounts accruing through the date of default. However, the lender must
complete all required activities before the claim filing deadline,
except that a preclaims assistance request must be made before the 240th
day of delinquency. If the lender fails to make this request by the
240th day, the Secretary will not pay any accrued interest, interest
benefits, and special allowance for the most recent 180 days prior to
default. If the lender fails to complete any other required activity
before the claim filing deadline, accrued interest, interest benefits,
and special allowance otherwise payable by the Secretary for the
delinquency period will be limited to amounts accruing through the 90th
day before default.
c. If there exist three violations of 6 days or more each (21 days
or more for a transfer) and no gap of 46 days or more (61 days or more
for a transfer), the lender must satisfy the requirements outlined in
I.E.1., or receive a full payment or a new signed repayment agreement in
order for reinsurance on the loan to be reinstated. The Secretary does
not pay any interest benefits or special allowance for the period
beginning with the lender's earliest unexcused violation occurring after
the last payment received before the cure is accomplished, and ending
with the date, if any, that reinsurance on the loan is reinstated.
d. If there exist more than three violations of 6 days or more each
(21 days or more for a transfer) of any type, or a gap of 46 days (61
days for a transfer) or more and at least one violation, the lender must
satisfy the requirement outlined in section I.D.1., for reinsurance on
the loan to be reinstated. The Secretary does not pay any interest
benefits or special allowance for the period beginning with the lender's
earliest unexcused violation occurring after the last payment received
before the cure is accomplished, and ending with the date, if any, that
reinsurance on the loan is reinstated.
3. Post 1998 Amendments. For due diligence violations based on due
dates on or after October 6, 1998--
a. There will be no reduction or recovery by the Secretary of
payments to the lender or guaranty agency if there is no violation of
Federal requirements of 6 days or more (21 days or more for a transfer).
b. If there exist not more than two violations of 6 days or more
each (21 days or more for a transfer), and no gap of 46 days or more (61
days or more for a transfer) exists, principal will be reinsured, but
accrued interest,
[[Page 193]]
interest benefits, and special allowance otherwise payable by the
Secretary for the delinquency period will be limited to amounts accruing
through the date of default. However, the lender must complete all
required activities before the claim filing deadline, except that a
default aversion assistance request must be made before the 330th day of
delinquency. If the lender fails to make this request by the 330th day,
the Secretary will not pay any accrued interest, interest benefits, and
special allowance for the most recent 270 days prior to default. If the
lender fails to complete any other required activity before the claim
filing deadline, accrued interest, interest benefits, and special
allowance otherwise payable by the Secretary for the delinquency period
will be limited to amounts accruing through the 90th day before default.
c. If there exist three violations of 6 days or more each (21 days
or more for a transfer) and no gap of 46 days or more (61 days or more
for a transfer), the lender must satisfy the requirements outlined in
I.E.1. or receive a full payment or a new signed repayment agreement in
order for reinsurance on the loan to be reinstated. The Secretary does
not pay any interest benefits or special allowance for the period
beginning with the lender's earliest unexcused violation occurring after
the last payment received before the cure is accomplished, and ending
with the date, if any, that reinsurance on the loan is reinstated.
d. If there exist more than three violations of 6 days or more each
(21 days or more for a transfer) of any type, or a gap of 46 days (61
days for a transfer) or more and at least one violation, the lender must
satisfy the requirement outlined in section I.D.1. for reinsurance on
the loan to be reinstated. The Secretary does not pay any interest
benefits or special allowance for the period beginning with the lender's
earliest unexcused violation occurring after the last payment received
before the cure is accomplished and ending with the date, if any, that
reinsurance on the loan is reinstated.
D. Reinstatement of Reinsurance Coverage for Certain Egregious Due
Diligence Violations.
1. Cures. In the case of a loan involving violations described in
section I.C.2.d. or I.C.3.d., the lender may utilize either of the two
procedures described in section I.D.1.a or I.D.1.b. for obtaining
reinstatement of reinsurance coverage on the loan.
a. After the violations occur, the lender obtains a new repayment
agreement signed by the borrower. The repayment agreement must comply
with the repayment period limitations set out in 34 CFR 682.209(a)(8)
and 682.209(h)(2); or
b. After the violations occur, the lender obtains one full payment.
If the borrower later defaults, the guaranty agency must obtain evidence
of this payment (e.g., a copy of the check) from the lender.
2. Borrower Deemed Current as of Date of Cure. On the date the
lender receives a new signed repayment agreement or the curing payment
under section I.D.1., reinsurance coverage on the loan is reinstated,
and the borrower must be deemed by the lender to be current in repaying
the loan and entitled to all rights and benefits available to borrowers
who are not in default. The lender must then follow the collection and
timely filing requirements applicable to the loan.
E. Cures for Timely Filing Violations and Certain Due Diligence
Violations
1. Default Claims.
a. Reinstatement of Insurance Coverage. Except as noted in section
I.B.6., in order to obtain reinstatement of reinsurance coverage on a
loan in the case of a timely filing violation, a due diligence violation
described in section I.C.2.c. or I.C.3.c., or a due diligence violation
described in section I.C.1.c. where the lender holds the loan on or
after March 15, 1988, the lender must first locate the borrower after
the gap, or after the date of the last violation, as applicable. (See
section I.E.1.d. for description of acceptable evidence of location.)
Within 15 days thereafter, the lender must send to the borrower, at the
address at which the borrower was located, (i) a new repayment
agreement, to be signed by the borrower, that complies with the ten-year
repayment limitations in 34 CFR 682.209(a)(7), along with (ii) a
collection letter indicating in strong terms the seriousness of the
borrower's delinquency and its potential effect on his or her credit
rating if repayment is not commenced or resumed. If, within 15 days
after the lender sends these items, the borrower fails to make a full
payment or to sign and return the new repayment agreement, the lender
must, within 5 days thereafter, diligently attempt to contact the
borrower by telephone. Within 5-10 days after completing these efforts,
the lender must again diligently attempt to contact the borrower by
telephone. Finally, within 5-10 days after completing these efforts, the
lender must send a forceful collection letter indicating that the entire
unpaid balance of the loan is due and payable, and that, unless the
borrower immediately contacts the lender to arrange repayment, the
lender will be filing a default claim with the guaranty agency.
b. Borrower Deemed Current Under Certain Circumstances. If, at any
time on or before the 30th day after the lender completes the additional
collection efforts described in section I.E.1.a., or the 270th day of
delinquency, whichever is later, the lender receives a full payment or a
new signed repayment agreement, reinsurance coverage on the loan is
reinstated on the date the lender receives the full payment or new
agreement. The borrower must be deemed by the lender to be
[[Page 194]]
current in repaying the loan and entitled to all rights and benefits
available to borrowers who are not in default. In the case of a timely
filing violation on a loan for which the borrower is deemed current
under this paragraph, the lender is ineligible to receive interest
benefits and special allowance accruing from the date of the violation
to the date of reinstatement of reinsurance coverage on the loan.
c. Borrower Deemed in Default Under Certain Circumstances. If the
borrower does not make a full payment, or sign and return the new
repayment agreement, on or before the 30th day after the lender
completes the additional collection efforts described in section
I.E.1.a., or the 270th day of delinquency, whichever is later, the
lender must deem the borrower to be in default. The lender must then
file a default claim on the loan, accompanied by acceptable evidence of
location (see section I.E.1.d.), within 30 days after the end of the 30-
day period. Reinsurance coverage, and therefore the lender's right to
receive interest benefits and special allowance, is not reinstated on a
loan involving these circumstances. However, the Secretary will honor
reinsurance claims submitted in accordance with this paragraph on the
outstanding principal balance of those loans, on unpaid interest as
provided in section I.B.7., and for reimbursement of eligible
supplemental preclaims assistance costs. In the case of a timely filing
violation on a loan for which the borrower is deemed in default under
this paragraph, the lender is ineligible to receive interest benefits
and special allowance accruing from the date of the violation.
d. Acceptable Evidence of Location. Only the following documentation
is acceptable as evidence that the lender has located the borrower:
(1) A postal receipt signed by the borrower not more than 15 days
prior to the date on which the lender sent the new repayment agreement,
indicating acceptance of correspondence from the lender by the borrower
at the address shown on the receipt; or
(2) Documentation submitted by the lender showing--
(i) The name, identification number, and address of the lender;
(ii) The name and Social Security number of the borrower; and
(iii) A signed certification by an employee or agent of the lender,
that--
(A) On a specified date, he or she spoke with or received written
communication (attached to the certification) from the borrower on the
loan underlying the default claim, or a parent, spouse, sibling,
roommate, or neighbor of the borrower;
(B) The address and, if available, telephone number of the borrower
were provided to the lender in the telephone or written communication;
and
(C) In the case of a borrower whose address or telephone number was
provided to the lender by someone other than the borrower, the new
repayment agreement and the letter sent by the lender pursuant to
section I.E.1.a., had not been returned undelivered as of 20 days after
the date those items were sent, for due diligence violations described
in section I.C.1.c. where the lender holds the loan on the date of this
letter, and as of the date the lender filed a default claim on the cured
loan, for all other violations.
2. Death, Disability, and Bankruptcy Claims. The Secretary will
honor a death or disability claim on an otherwise eligible loan
notwithstanding the lender's failure to meet the 60-day timely filing
requirement (See 34 CFR 682.402(g)(2)(i)). However, the Secretary will
not reimburse the guaranty agency if, before the date the lender
determined that the borrower died or was totally and permanently
disabled, the lender had violated the Federal due diligence or timely
filing requirements applicable to that loan, except in accordance with
the waiver policy described above. Interest that accrued on the loan
after the expiration of the 60-day filing period remains ineligible for
reimbursement by the Secretary, and the lender must repay all interest
and special allowance received on the loan for periods after the
expiration of the 60-day filing period. The Secretary has determined
that, in the vast majority of cases, the failure of a lender to comply
with the timely filing requirement applicable to bankruptcy claims
(Sec. 682.402(g)(2)(iv)) causes irreparable harm to the guaranty
agency's ability to contest the discharge of the loan by the court, or
to otherwise collect from the borrower. Therefore, the Secretary has
decided not to excuse violations of the timely filing requirement
applicable to bankruptcy claims, except when the lender can demonstrate
that the bankruptcy action has concluded and that the loan has not been
discharged in bankruptcy or, if previously discharged, has been the
subject of a reversal of the discharge. In that case, the lender must
return the borrower to the appropriate status that existed prior to the
filing of the bankruptcy claim unless the status has changed due solely
to passage of time. In the latter case, the lender must place the
borrower in the status that would exist had no bankruptcy claim been
filed. If the borrower is delinquent after the loan is determined
nondischargeable, the lender should grant administrative forbearance to
bring the borrower's account current as provided in Sec. 682.211(f)(4)
and Sec. 682.402(f)(5)(ii) and (f)(6). The Secretary will not reimburse
the guaranty agency for interest for the period beginning on the filing
deadline for the bankruptcy claim and ending on the date the loan
becomes eligible again for reinsurance. Reinsurance is reinstated on the
date the bankruptcy action concludes and the loan is not
[[Page 195]]
discharged or on the date a previous discharge is reversed.
II. Due Date of First Payment. Section 682.411(b)(1) refers to the
``due date of the first missed payment not later made'' as one way to
determine the first day of delinquency on a loan. Section 682.209(a)(3)
states that, generally, the repayment period on an FFEL Program loan
begins some number of months after the month in which the borrower
ceases at least half-time study. Where the borrower enters the repayment
period with the lender's knowledge, the first payment due date may be
set by the lender, provided it falls within a reasonable time after the
first day of the month in which the repayment period begins. In this
situation, the Secretary generally permits a lender to allow the
borrower up to 45 days from the first day of repayment to make the first
payment (unless the lender establishes the first day of repayment under
Sec. 682.209(a)(3)(ii)(E)).
1. In cases where the lender learns that the borrower has entered
the repayment period after the fact, current Sec. 682.411 treats the
30th day after the lender receives this information as the first day of
delinquency. In the course of discussion with lenders, the Secretary has
learned that many lenders have not been using the 30th day after receipt
of notice that the repayment period has begun (``the notice'') as the
first payment due date. In recognition of this apparently widespread
practice, the Secretary has decided that, both retrospectively and
prospectively, a lender should be allowed to establish a first payment
due date within 60 days after receipt of the notice, to capitalize
interest accruing up to the first payment due date, and to exercise
forbearance with respect to the period during which the borrower was in
the repayment period but made no payment. In effect, this means that, if
the lender sends the borrower a coupon book, billing notice, or other
correspondence establishing a new first payment due date, on or before
the 60th day after receipt of the notice, the lender is deemed to have
exercised forbearance up to the new first payment due date. The new
first payment due date must fall no later than 75 days after receipt of
the notice (unless the lender establishes the first day of repayment
under Sec. 682.209(a)(3)(ii)(E)). In keeping with the 5-day tolerance
permitted under section I.C.2.a., for the ``prospective period,'' or
section I.C.3.a., for the ``post 1998 amendment period,'' a lender that
sends the above-described material on or before the 65th day after
receipt of the notice will be held harmless. However, a lender that does
so on the 66th day will have failed by more than 5 days to send both of
the collection letters required by Sec. 682.411(c) to be sent within the
first 30 days of delinquency and will thus have committed two violations
of more than five days of that rule.
2. If the lender fails to send the material establishing a new first
payment due date on or before the 65th day after receipt of the notice,
it may thereafter send material establishing a new first payment due
date falling not more than 45 days after the materials are sent and will
be deemed to have exercised forbearance up to the new first payment due
date. However, all violations and gaps occurring prior to the date on
which the material is sent are subject to the waiver policies described
in section I for violations falling in either the retrospective or
prospective periods. This is an exception to the general policy set
forth in section I.B.5., that only violations occurring during the most
recent 180 or 270 days (as applicable) of the delinquency period on a
loan are relevant to the Secretary's examination of due diligence.
Please Note: References to the ``65th day after receipt of the
notice'' and ``66th day'' in the preceding paragraphs should be amended
to read ``95th day'' and ``96th day'' respectively for lenders subject
to Sec. 682.209(a)(3)(ii)(E).
III. Questions and Answers
The waiver policy outlined in this letter was developed after
extensive discussion and consultation with participating lenders and
guaranty agencies. In the course of these discussions, lenders and
agencies raised a number of questions regarding the due diligence rules
as applied to various circumstances. The Secretary's responses to these
questions follow.
Note: The answer to questions 1 and 4 are applicable only to loans
subject to Sec. 682.411 of the FFEL and PLUS program regulations
published on or after November 10, 1986.
1. Q: Section 682.411 of the program regulations requires the lender
to make ``diligent efforts to contact the borrower by telephone'' during
each 30-day period of delinquency beginning after the 30th day of
delinquency. What must a lender do to comply with this requirement?
A: Generally speaking, one actual telephone contact with the
borrower, or two attempts to make such contact on different days and at
different times, will satisfy the ``diligent efforts'' requirement for
any of the 30-day delinquency periods described in the rule. However,
the ``diligent efforts'' requirement is intended to be a flexible one,
requiring the lender to act on information it receives in the course of
attempting telephone contact regarding the borrower's actual telephone
number, the best time to call to reach the borrower, etc. For instance,
if the lender is told during its second telephone contact attempt that
the borrower can be reached at another number or at a different time of
day, the lender must then attempt to reach the borrower by telephone at
that number or that time of day.
[[Page 196]]
2. Q: What must a lender do when it receives conflicting information
regarding the date a borrower ceased at least half-time study?
A: A lender must promptly attempt to reconcile conflicting
information regarding a borrower's in-school status by making inquiries
of appropriate parties, including the borrower's school. Pending
reconciliation, the lender may rely on the most recent credible
information it has.
3. Q: If a loan is transferred from one lender to another, is the
transferee held responsible for information regarding the borrower's
status that is received by the transferor but is not passed on to the
transferee?
A: No. A lender is responsible only for information received by its
agents and employees. However, if the transferee has reason to believe
that the transferor has received additional information regarding the
loan, the transferee must make a reasonable inquiry of the transferor as
to the nature and substance of that information.
4. Q: What are a lender's due diligence responsibilities where a
check received on a loan is dishonored by the bank on which it was
drawn?
A: Upon receiving notice that a check has been dishonored, the
lender must treat the payment as having never been made for purposes of
determining the number of days that the borrower is delinquent at that
time. The lender must then begin (or resume) attempting collection on
the loan in accordance with Sec. 682.411, commencing with the first 30-
day delinquency period described in Sec. 682.411 that begins after the
30-day delinquency period in which the notice of dishonor is received.
The same result occurs when the lender successfully obtains a delinquent
borrower's correct address through skip-tracing, or when a delinquent
borrower leaves deferment or forbearance status.
[64 FR 58636, Oct. 29, 1999, as amended at 66 FR 34765, June 29, 2001;
78 FR 65823, Nov. 1, 2013]
PART 685_WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM--Table of Contents
Subpart A_Purpose and Scope
Sec.
685.100 The William D. Ford Federal Direct Loan Program.
685.101 Participation in the Direct Loan Program.
685.102 Definitions.
685.103 Applicability of subparts.
Subpart B_Borrower Provisions
685.200 Borrower eligibility.
685.201 Obtaining a loan.
685.202 Charges for which Direct Loan Program borrowers are
responsible.
685.203 Loan limits.
685.204 Deferment.
685.205 Forbearance.
685.206 Borrower responsibilities and defenses.
685.207 Obligation to repay.
685.208 Repayment plans.
685.209 Income-contingent repayment plans.
685.210 Choice of repayment plan.
685.211 Miscellaneous repayment provisions.
685.212 Discharge of a loan obligation.
685.213 Total and permanent disability discharge.
685.214 Closed school discharge.
685.215 Discharge for false certification of student eligibility or
unauthorized payment.
685.216 Unpaid refund discharge.
685.217 Teacher loan forgiveness program.
685.218 Discharge of student loan indebtedness for survivors of victims
of the September 11, 2001, attacks.
685.219 Public Service Loan Forgiveness Program.
685.220 Consolidation.
685.221 Income-based repayment plan.
685.222 Borrower defenses.
685.223 Severability.
Appendix A to Subpart B of Part 685--Examples of Borrower Relief
Subpart C_Requirements, Standards, and Payments for Direct Loan Program
Schools
685.300 Agreements between an eligible school and the Secretary for
participation in the Direct Loan Program.
685.301 Origination of a loan by a Direct Loan Program school.
685.302 [Reserved]
685.303 Processing loan proceeds.
685.304 Counseling borrowers.
685.305 Determining the date of a student's withdrawal.
685.306 Payment of a refund or return of title IV, HEA program funds to
the Secretary.
685.307 Withdrawal procedure for schools participating in the Direct
Loan Program.
685.308 Remedial actions.
685.309 Administrative and fiscal control and fund accounting
requirements for schools participating in the Direct Loan
Program.
685.310 Severability.
Subpart D [Reserved]
Authority: 20 U.S.C 1070g, 1087a, et seq., unless otherwise noted.
Source: 59 FR 61690, Dec. 1, 1994, unless otherwise noted.
[[Page 197]]
Subpart A_Purpose and Scope
Sec. 685.100 The William D. Ford Federal Direct Loan Program.
(a) Under the William D. Ford Federal Direct Loan (Direct Loan)
Program (formerly known as the Federal Direct Student Loan Program), the
Secretary makes loans to enable a student or parent to pay the costs of
the student's attendance at a postsecondary school. This part governs
the Federal Direct Stafford/Ford Loan Program, the Federal Direct
Unsubsidized Stafford/Ford Loan Program, the Federal Direct PLUS
Program, and the Federal Direct Consolidation Loan Program. The
Secretary makes loans under the following program components:
(1)(i) Federal Direct Stafford/Ford Loan Program (Direct Subsidized
Loan Program), which provides loans to undergraduate, graduate, and
professional students. Loans made under this program are referred to as
Direct Subsidized Loans. Except as provided in paragraph (a)(1)(ii) of
this section, the Secretary subsidizes the interest while the borrower
is in an in-school, grace, or deferment period. Graduate and
professional students are not eligible to receive Direct Subsidized
Loans for any period of enrollment beginning on or after July 1, 2012.
(ii) The Secretary does not subsidize the interest that accrues
during the grace period on any Direct Subsidized Loan for which the
first disbursement is made on or after July 1, 2012 and before July 1,
2014.
(2) Federal Direct Unsubsidized Stafford/Ford Loan Program (Direct
Unsubsidized Loan Program), which provides loans to undergraduate,
graduate and professional students. Loans made under this program are
referred to as Direct Unsubsidized Loans. The borrower is responsible
for the interest that accrues during any period.
(3) Federal Direct PLUS Program (Direct PLUS Loan Program), which
provides loans to parents of dependent students and to graduate or
professional students. Loans made under this program are referred to as
Direct PLUS Loans. The borrower is responsible for the interest that
accrues during any period.
(4) Federal Direct Consolidation Loan Program (Direct Consolidation
Loan Program), which provides loans to borrowers to consolidate certain
Federal educational loans. Loans made under this program are referred to
as Direct Consolidation Loans.
(b) The Secretary makes a Direct Subsidized Loan, a Direct
Unsubsidized Loan, or a Direct PLUS Loan only to a student or a parent
of a student enrolled in a school that participates in the Direct Loan
Program.
(c) The Secretary makes a Direct Consolidation Loan only to a
borrower who is consolidating at least one loan made under the Direct
Loan Program or the Federal Family Education Loan (FFEL) Program.
(Authority: 20 U.S.C. 1087a et seq.)
[59 FR 61690, Dec. 1, 1994, as amended at 71 FR 45709, Aug. 9, 2006; 78
FR 65823, Nov. 1, 2013]
Sec. 685.101 Participation in the Direct Loan Program.
(a) Colleges, universities, graduate and professional schools,
vocational schools, and proprietary schools may participate in the
Direct Loan Program. Participation in the Direct Loan Program enables an
eligible student or parent to obtain a loan to pay for the student's
cost of attendance at the school.
(b)(1) An eligible undergraduate student who is enrolled at a school
participating in the Direct Loan Program may borrow under the Direct
Subsidized Loan and Direct Unsubsidized Loan programs.
(2) An eligible graduate or professional student enrolled at a
school participating in the Direct Loan Program may borrow under the
Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct PLUS Loan
programs, except that a graduate or professional student may not borrow
under the Direct Subsidized Loan Program for any period of enrollment
beginning on or after July 1, 2012.
(3) An eligible parent of an eligible dependent student enrolled at
a school
[[Page 198]]
participating in the Direct Loan Program may borrow under the Direct
PLUS Loan Program.
(Authority: 20 U.S.C. 1087a et seq.)
[78 FR 65823, Nov. 1, 2013]
Sec. 685.102 Definitions.
(a)(1) The definitions of the following terms used in this part are
set forth in the Student Assistance General Provisions, 34 CFR part 668:
Academic year
Campus-based programs
Dependent student
Disbursement
Eligible program
Eligible student
Enrolled
Expected family contribution (EFC)
Federal Consolidation Loan Program
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal Supplemental Educational Opportunity Grant Program
Federal Work-Study Program
Full-time student
Graduate or professional student
Half-time student
Independent student
One-third of an academic year
Parent
Payment period
Teacher Education Assistance for College and Higher Education (TEACH)
Grant Program
TEACH Grant
Two-thirds of an academic year
Undergraduate student
U.S. citizen or national
William D. Ford Federal Direct Loan (Direct Loan) Program
(2) The following definitions are set forth in the regulations for
Institutional Eligibility under the Higher Education Act of 1965, as
amended, 34 CFR part 600:
Accredited
Clock hour
Correspondence course
Credit hour
Educational program
Eligible institution
Federal Family Education Loan (FFEL) Program
Foreign institution
Institution of higher education
Nationally recognized accrediting agency or association
Preaccredited
Secretary
State
(b) The following definitions also apply to this part:
Act: The Higher Education Act of 1965, as amended, 20 U.S.C. 1071 et
seq.
Default: The failure of a borrower and endorser, if any, to make an
installment payment when due, or to meet other terms of the promissory
note, if the Secretary finds it reasonable to conclude that the borrower
and endorser, if any, no longer intend to honor the obligation to repay,
provided that this failure persists for 270 days.
Endorser: An individual who signs a promissory note and agrees to
repay the loan in the event that the borrower does not.
Estimated financial assistance. (1) The estimated amount of
assistance for a period of enrollment that a student (or a parent on
behalf of a student) will receive from Federal, State, institutional, or
other sources, such as scholarships, grants, net earnings from need-
based employment, or loans, including but not limited to--
(i) Except as provided in paragraph (2)(iii) of this definition,
national service education awards or post-service benefits under title I
of the National and Community Service Act of 1990 (AmeriCorps).
(ii) Except as provided in paragraph (2)(vii) of this definition,
veterans' education benefits;
(iii) Any educational benefits paid because of enrollment in a
postsecondary education institution, or to cover postsecondary education
expenses;
(iv) Fellowships or assistantships, except non-need-based employment
portions of such awards;
(v) Insurance programs for the student's education; and
(vi) The estimated amount of other Federal student financial aid,
including but not limited to a Federal Pell Grant, campus-based aid, and
the gross amount (including fees) of subsidized and unsubsidized Federal
Stafford Loans, Direct Subsidized and Unsubsidized Loans, and Federal
PLUS or Direct PLUS Loans.
(2) Estimated financial assistance does not include--
(i) Those amounts used to replace the expected family contribution
(EFC), including the amounts of any TEACH
[[Page 199]]
Grants, unsubsidized Federal Stafford Loans or Direct Unsubsidized
Loans, Federal PLUS or Direct PLUS Loans, and non-federal non-need-based
loans, including private, state-sponsored, and institutional loans.
However, if the sum of the amounts received that are being used to
replace the student's EFC exceed the EFC, the excess amount must be
treated as estimated financial assistance;
(ii) Federal Perkins loan and Federal Work-Study funds that the
student has declined;
(iii) For the purpose of determining eligibility for a Direct
Subsidized Loan, national service education awards or post-service
benefits under title I of the National and Community Service Act of 1990
(AmeriCorps);
(iv) Any portion of the estimated financial assistance described in
paragraph (1) of this definition that is included in the calculation of
the student's EFC;
(v) Non-need-based employment earnings;
(vi) Assistance not received under a title IV, HEA program, if that
assistance is designated to offset all or a portion of a specific amount
of the cost of attendance and that component is excluded from the cost
of attendance as well. If that assistance is excluded from either
estimated financial assistance or cost of attendance, it must be
excluded from both;
(vii) Federal veterans' education benefits paid under--
(A) Chapter 103 of title 10, United States Code (Senior Reserve
Officers' Training Corps);
(B) Chapter 106A of title 10, United States Code (Educational
Assistance for Persons Enlisting for Active Duty);
(C) Chapter 1606 of title 10, United States Code (Selected Reserve
Educational Assistance Program);
(D) Chapter 1607 of title 10, United States Code (Educational
Assistance Program for Reserve Component Members Supporting Contingency
Operations and Certain Other Operations);
(E) Chapter 30 of title 38, United States Code (All-Volunteer Force
Educational Assistance Program, also known as the ``Montgomery GI Bill--
active duty'');
(F) Chapter 31 of title 38, United States Code (Training and
Rehabilitation for Veterans with Service-Connected Disabilities);
(G) Chapter 32 of title 38, United States Code (Post-Vietnam Era
Veterans' Educational Assistance Program);
(H) Chapter 33 of title 38, United States Code (Post 9/11
Educational Assistance);
(I) Chapter 35 of title 38, United States Code (Survivors' and
Dependents' Educational Assistance Program);
(J) Section 903 of the Department of Defense Authorization Act, 1981
(10 U.S.C. 2141 note) (Educational Assistance Pilot Program);
(K) Section 156(b) of the ``Joint Resolution making further
continuing appropriations and providing for productive employment for
the fiscal year 1983, and for other purposes'' (42 U.S.C. 402 note)
(Restored Entitlement Program for Survivors, also known as ``Quayle
benefits'');
(L) The provisions of chapter 3 of title 37, United States Code,
related to subsistence allowances for members of the Reserve Officers
Training Corps; and
(M) Any program that the Secretary may determine is covered by
section 480(c)(2) of the HEA; and
(viii) Iraq and Afghanistan Service Grants made under section 420R
of the HEA.
Federal Direct Consolidation Loan Program (Direct Consolidation Loan
Program): (1) A loan program authorized by title IV, part D of the Act
that provides loans to borrowers who consolidate certain Federal
educational loan(s), and one of the components of the Direct Loan
Program. Loans made under this program are referred to as Direct
Consolidation Loans.
(2) The term ``Direct Subsidized Consolidation Loan'' refers to the
portion of a Direct Consolidation Loan attributable to certain
subsidized title IV education loans that were repaid by the
consolidation loan. Interest is not charged to the borrower during
deferment periods, or, for a borrower whose consolidation application
was received before July 1, 2006, during in-school and grace periods.
[[Page 200]]
(3) The term ``Direct Unsubsidized Consolidation Loan'' refers to
the portion of a Direct Consolidation Loan attributable to unsubsidized
title IV education loans, certain subsidized title IV education loans,
and certain other Federal education loans that were repaid by the
consolidation loan. The borrower is responsible for the interest that
accrues during any period.
(4) In the case of a Direct Consolidation Loan that entered
repayment prior to July 1, 2006, the term ``Direct PLUS Consolidation
Loan'' refers to the portion of a Direct Consolidation Loan attributable
to Direct PLUS Loans, Direct PLUS Consolidation Loans, Federal PLUS
Loans, and Parent Loans for Undergraduate Students that were repaid by
the consolidation loan. The borrower is responsible for the interest
that accrues during any period.
Federal Direct PLUS Program (Direct PLUS Loan Program): A loan
program authorized by title IV, Part D of the Act that is one of the
components of the Federal Direct Loan Program. The Federal Direct PLUS
Program provides loans to parents of dependent students attending
schools that participate in the Direct Loan Program. The Federal Direct
PLUS Program also provides loans to graduate or professional students
attending schools that participate in the Direct Loan Program. The
borrower is responsible for the interest that accrues during any period.
Loans made under this program are referred to as Direct PLUS Loans.
Federal Direct Stafford/Ford Loan Program (Direct Subsidized Loan
Program): A loan program authorized by title IV, part D of the Act that
provides loans to undergraduate, graduate, and professional students
attending Direct Loan Program schools, and one of the components of the
Direct Loan Program. The Secretary subsidizes the interest while the
borrower is in an in-school, grace, or deferment period, except that the
Secretary does not subsidize the interest that accrues during the grace
period on a loan for which the first disbursement is made on or after
July 1, 2012 and before July 1, 2014. Loans made under this program are
referred to as Direct Subsidized Loans. Graduate and professional
students are not eligible to receive Direct Subsidized Loans for any
period of enrollment beginning on or after July 1, 2012.
Federal Direct Unsubsidized Stafford/Ford Loan Program (Direct
Unsubsidized Loan Program): A loan program authorized by title IV, part
D of the Act that provides loans to undergraduate, graduate, and
professional students attending Direct Loan Program schools, and one of
the components of the Direct Loan Program. The borrower is responsible
for the interest that accrues during any period. Loans made under this
program are referred to as Direct Unsubsidized Loans.
Federal Insured Student Loan Program: The loan program authorized by
title IV, part B of the Act under which the Secretary directly insures
lenders against losses.
Federal Stafford Loan Program: The loan program authorized by title
IV, part B of the Act which encouraged the making of subsidized and
unsubsidized loans to undergraduate, graduate, and professional students
and is one of the Federal Family Education Loan programs.
Grace period: A six-month period that begins on the day after a
Direct Subsidized Loan borrower, a Direct Unsubsidized Loan borrower,
or, in some cases, a Direct Consolidation Loan borrower whose
consolidation application was received before July 1, 2006, ceases to be
enrolled as at least a half-time student at an eligible institution and
ends on the day before the repayment period begins.
Guaranty agency: A State or private nonprofit organization that has
an agreement with the Secretary under which it will administer a loan
guarantee program under the Act.
Holder: The entity that owns a loan. For a FFEL Program loan, the
term ``holder'' refers to an eligible lender owning a FFEL Program loan,
including a Federal or State agency or an organization or corporation
acting on behalf of such an agency and acting as a conservator,
liquidator, or receiver of an eligible lender.
Interest rate: The annual interest rate that is charged on a loan,
under title IV, part D of the Act.
Lender: As used in this part, the term ``lender'' has the meaning
specified in
[[Page 201]]
section 435(d) of the Act for purposes of the FFEL Program.
Loan fee: A fee, payable by the borrower, that is used to help
defray the costs of the Direct Loan Program.
Master Promissory Note (MPN): (1) A promissory note under which the
borrower may receive loans for a single academic year or multiple
academic years.
(2) For MPNs processed by the Secretary before July 1, 2003, loans
may no longer be made under an MPN after the earliest of--
(i) The date the Secretary or the school receives the borrower's
written notice that no further loans may be disbursed;
(ii) One year after the date of the borrower's first anticipated
disbursement if no disbursement is made during that twelve-month period;
or
(iii) Ten years after the date of the first anticipated
disbursement, except that a remaining portion of a loan may be disbursed
after this date.
(3) For MPNs processed by the Secretary on or after July 1, 2003,
loans may no longer be made under an MPN after the earliest of--
(i) The date the Secretary or the school receives the borrower's
written notice that no further loans may be made;
(ii) One year after the date the borrower signed the MPN or the date
the Secretary receives the MPN, if no disbursements are made under that
MPN; or
(iii) Ten years after the date the borrower signed the MPN or the
date the Secretary receives the MPN, except that a remaining portion of
a loan may be disbursed after this date.
(4) Unless the Secretary determines otherwise, a school may use a
single MPN as the basis for all loans borrowed by a student or parent
borrower for attendance at that school. If a school is not authorized by
the Secretary for multi-year use of the MPN, a student or parent
borrower must sign a new MPN for each academic year.
Nationwide consumer reporting agency: A consumer reporting agency as
defined in 15 U.S.C. 1681a(p).
Payment data: An electronic record that is provided to the Secretary
by an institution showing student disbursement information.
Period of enrollment: The period for which a Direct Subsidized,
Direct Unsubsidized, or Direct PLUS Loan is intended. The period of
enrollment must coincide with one or more bona fide academic terms
established by the school for which institutional charges are generally
assessed (e.g., a semester, trimester, or quarter in weeks of
instructional time; an academic year; or the length of the program of
study in weeks of instructional time). The period of enrollment is also
referred to as the loan period.
Satisfactory repayment arrangement: (1) For the purpose of regaining
eligibility under section 428F(b) of the HEA, the making of six
consecutive, voluntary, on-time, full monthly payments on a defaulted
loan. A borrower may only obtain the benefit of this paragraph with
respect to renewed eligibility once.
(2) For the purpose of consolidating a defaulted loan under
Sec. 685.220(d)(1)(ii)(A)(3)--
(i) The making of three consecutive, voluntary, on-time, full
monthly payments on a defaulted loan prior to consolidation; or
(ii) Agreeing to repay the Direct Consolidation Loan under one of
the income-contingent repayment plans described in Sec. 685.209 or the
income-based repayment plan described in Sec. 685.221.
(3) For the purpose of paragraph (2)(i) of this definition, the
required monthly payment amount may not be more than is reasonable and
affordable based on the borrower's total financial circumstances. ``On-
time'' means a payment made within 20 days of the scheduled due date,
and voluntary payments are payments made directly by the borrower and do
not include payments obtained by Federal offset, garnishment, or income
or asset execution.
(4) A borrower has not used the one opportunity to renew eligibility
for title IV assistance if the borrower makes six consecutive, on-time,
voluntary, full monthly payments under an agreement to rehabilitate a
defaulted loan, but does not receive additional title IV assistance
prior to defaulting on that loan again.
[[Page 202]]
Substantial gainful activity: A level of work performed for pay or
profit that involves doing significant physical or mental activities, or
a combination of both.
Totally and permanently disabled: The condition of an individual
who--
(1) Is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment
that--
(i) Can be expected to result in death;
(ii) Has lasted for a continuous period of not less than 60 months;
or
(iii) Can be expected to last for a continuous period of not less
than 60 months; or
(2) Has been determined by the Secretary of Veterans Affairs to be
unemployable due to a service-connected disability.
(Authority: 20 U.S.C. 1070g, 1087a, et seq.)
[59 FR 61690, Dec. 1, 1994]
Editorial Note: For Federal Register citations affecting
Sec. 685.102, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
Sec. 685.103 Applicability of subparts.
(a) Subpart A contains general provisions regarding the purpose and
scope of the Direct Loan Program.
(b) Subpart B contains provisions regarding borrowers in the Direct
Loan Program.
(c) Subpart C contains certain requirements regarding schools in the
Direct Loan Program.
(d) Subpart D contains provisions regarding school eligibility for
participation and origination in the Direct Loan Program.
(Authority: 20 U.S.C. 1087a et seq.)
Subpart B_Borrower Provisions
Sec. 685.200 Borrower eligibility.
(a) Student Direct Subsidized or Direct Unsubsidized borrower. (1) A
student is eligible to receive a Direct Subsidized Loan, a Direct
Unsubsidized Loan, or a combination of these loans, if the student meets
the following requirements:
(i) The student is enrolled, or accepted for enrollment, on at least
a half-time basis in a school that participates in the Direct Loan
Program.
(ii) The student meets the requirements for an eligible student
under 34 CFR part 668.
(iii) In the case of an undergraduate student who seeks a Direct
Subsidized Loan or a Direct Unsubsidized Loan at a school that
participates in the Federal Pell Grant Program, the student has received
a determination of Federal Pell Grant eligibility for the period of
enrollment for which the loan is sought.
(iv) In the case of a borrower whose previous loan or TEACH Grant
service obligation was discharged due to total and permanent disability,
the student--
(A) In the case of a borrower whose prior loan under title IV of the
Act or TEACH Grant service obligation was discharged after a final
determination of total and permanent disability, the borrower--
(1) Obtains a certification from a physician that the borrower is
able to engage in substantial gainful activity; and
(2) Signs a statement acknowledging that neither the new Direct Loan
the borrower receives nor any previously discharged loan on which the
borrower is required to resume payment in accordance with paragraph
(a)(1)(iv)(B) of this section can be discharged in the future on the
basis of any impairment present when the new loan is made, unless that
impairment substantially deteriorates;
(B) In the case of a borrower who receives a new Direct Loan, other
than a Direct Consolidation Loan, within three years of the date that
any previous title IV loan or TEACH Grant service obligation was
discharged due to a total and permanent disability in accordance with
Sec. 685.213(b)(4)(iii), 34 CFR 674.61(b)(3)(v), 34 CFR
682.402(c)(3)(iv), or 34 CFR 686.42(b) based on a discharge request
received on or after July 1, 2010, the borrower resumes repayment on the
previously discharged loan in accordance with Sec. 685.213(b)(7), 34 CFR
674.61(b)(6), or 34 CFR 682.402(c)(6), or acknowledges that he or she is
once again subject to the terms of the TEACH Grant agreement to serve
before receiving the new loan; and
[[Page 203]]
(C) In the case of a borrower whose prior loan under title IV of the
Act was conditionally discharged after an initial determination that the
borrower was totally and permanently disabled based on a discharge
request received prior to July 1, 2010--
(1) The suspension of collection activity on the prior loan has been
lifted;
(2) The borrower complies with the requirement in paragraph
(a)(1)(iv)(A)(1) of this section;
(3) The borrower signs a statement acknowledging that neither the
new Direct Loan the borrower receives nor the loan that has been
conditionally discharged prior to a final determination of total and
permanent disability can be discharged in the future on the basis of any
impairment present when the borrower applied for a total and permanent
disability discharge or when the new loan is made, unless that
impairment substantially deteriorates; and
(4) The borrower signs a statement acknowledging that the suspension
of collection activity on the prior loan will be lifted.
(v) In the case of a student who was enrolled in a program of study
prior to July 1, 2012 and who seeks a loan but does not have a
certificate of graduation from a school providing secondary education or
the recognized equivalent of such a certificate, the student meets the
requirements under 34 CFR 668.32(e)(2), (3), (4), or (5).
(2)(i) A Direct Subsidized Loan borrower must--
(A) Demonstrate financial need in accordance with title IV, part F
of the Act; and
(B) In the case of a first-time borrower as defined in paragraph
(f)(1)(i) of this section, not have met or exceeded the limitations on
the receipt of Direct Subsidized Loans described in paragraph (f) of
this section.
(ii) The Secretary considers a member of a religious order, group,
community, society, agency, or other organization who is pursuing a
course of study at an institution of higher education to have no
financial need as that term is used in paragraph (a)(2)(i)(A) of this
section if that organization--
(A) Has as its primary objective the promotion of ideals and beliefs
regarding a Supreme Being;
(B) Requires its members to forego monetary or other support
substantially beyond the support it provides; and
(C)(1) Directs the member to pursue the course of study; or
(2) Provides subsistence support to its members.
(b) Student PLUS borrower. (1) The student is enrolled, or accepted
for enrollment, on at least a half-time basis in a school that
participates in the Direct Loan Program.
(2) The student meets the requirements for an eligible student under
34 CFR part 668.
(3) The student meets the requirements of paragraphs (a)(1)(iv) and
(a)(1)(v) of this section, if applicable.
(4) The student has received a determination of his or her annual
loan maximum eligibility under the Direct Unsubsidized Loan Program and,
for periods of enrollment beginning before July 1, 2012, the Direct
Subsidized Loan Program; and
(5) The student meets the requirements that apply to a parent under
paragraphs (c)(2)(viii)(A) through (G) of this section.
(c) Parent PLUS borrower--(1) Definitions. The following definitions
apply to this paragraph (c):
(i) Charged off means a debt that a creditor has written off as a
loss, but that is still subject to collection action.
(ii) In collection means a debt that has been placed with a
collection agency by a creditor or that is subject to more intensive
efforts by a creditor to recover amounts owed from a borrower who has
not responded satisfactorily to the demands routinely made as part of
the creditor's billing procedures.
(2) Eligibility. A parent is eligible to receive a Direct PLUS Loan
if the parent meets the following requirements:
(i) The parent is borrowing to pay for the educational costs of a
dependent undergraduate student who meets the requirements for an
eligible student under 34 CFR part 668.
(ii) The parent provides his or her and the student's social
security number.
[[Page 204]]
(iii) The parent meets the requirements pertaining to citizenship
and residency that apply to the student under 34 CFR 668.33.
(iv) The parent meets the requirements concerning defaults and
overpayments that apply to the student in 34 CFR 668.32(g).
(v) The parent complies with the requirements for submission of a
Statement of Educational Purpose that apply to the student under 34 CFR
part 668, except for the completion of a Statement of Selective Service
Registration Status.
(vi) The parent meets the requirements that apply to a student under
paragraph (a)(1)(iv) of this section.
(vii) The parent has completed repayment of any title IV, HEA
program assistance obtained by fraud, if the parent has been convicted
of, or has pled nolo contendere or guilty to, a crime involving fraud in
obtaining title IV, HEA program assistance.
(viii)(A) The parent--
(1) Does not have an adverse credit history;
(2) Has an adverse credit history, but has obtained an endorser who
does not have an adverse credit history, and completes PLUS loan
counseling offered by the Secretary; or
(3) Has an adverse credit history but documents to the satisfaction
of the Secretary that extenuating circumstances exist and completes PLUS
loan counseling offered by the Secretary.
(B) For purposes of this paragraph (c), an adverse credit history
means that the parent--
(1) Has one or more debts with a total combined outstanding balance
greater than $2,085, as may be adjusted by the Secretary in accordance
with paragraphs (c)(2)(viii)(C) and (D) of this section, that are 90 or
more days delinquent as of the date of the credit report, or that have
been placed in collection or charged off, as defined in paragraph (c)(1)
of this section, during the two years preceding the date of the credit
report; or
(2) Has been the subject of a default determination, bankruptcy
discharge, foreclosure, repossession, tax lien, wage garnishment, or
write-off of a debt under title IV of the Act during the five years
preceding the date of the credit report.
(C) The Secretary increases the amount specified in paragraph
(c)(2)(viii)(B)(1) of this section, or its inflation-adjusted
equivalent, when the Secretary determines that an inflation adjustment
to that amount would result in an increase of $100 or more.
(D) In making the inflation adjustment described in paragraph
(c)(2)(viii)(C) of this section, the Secretary:
(1) Uses the annual average percent change of the All Items Consumer
Price Index for All Urban Consumers (CPI-U), before seasonal adjustment,
as the measurement of inflation; and
(2) If the adjustment calculated under paragraph (c)(2)(viii)(D)(1)
of this section is equal to or greater than $100, adding the adjustment
to $2,085 threshold amount, or its inflation-adjusted equivalent, and
rounding up to the nearest $5.
(E) The Secretary will publish a notice in the Federal Register
announcing any increase to the amount specified in paragraph
(c)(2)(viii)(B)(1) of this section.
(F) For purposes of this paragraph (c), the Secretary does not
consider the absence of a credit history as an adverse credit history
and does not deny a Direct PLUS loan on that basis.
(G) For purposes of this paragraph (c), the Secretary may determine
that extenuating circumstances exist based on documentation that may
include, but is not limited to--
(1) An updated credit report for the parent; or
(2) A statement from the creditor that the parent has repaid or made
satisfactory arrangements to repay a debt that was considered in
determining that the parent has an adverse credit history.
(3) For purposes of paragraph (c)(2) of this section, a ``parent''
includes the individuals described in the definition of ``parent'' in 34
CFR 668.2 and the spouse of a parent who remarried, if that spouse's
income and assets would have been taken into account when calculating a
dependent student's expected family contribution.
(d) Defaulted Perkins, FFEL, and Direct Loan program borrowers.
Except as
[[Page 205]]
noted in Sec. 685.220(d)(1)(ii)(A)(3), in the case of a student or
parent borrower who is currently in default on a Perkins, FFEL, or
Direct Loan program loan, the borrower must make satisfactory repayment
arrangements, as described in paragraph (1) of the definition of that
term under Sec. 685.102(b), on the defaulted loan.
(e) Use of loan proceeds to replace expected family contribution.
The amount of a Direct Unsubsidized Loan, a Direct PLUS loan, or a non-
federal non-need based loan, including a private, state-sponsored, or
institution loan, obtained for a loan period may be used to replace the
expected family contribution for that loan period.
(f) Limitations on eligibility for Direct Subsidized Loans and
borrower responsibility for accruing interest for first-time borrowers
on or after July 1, 2013--(1) Definitions. The following definitions
apply to this paragraph:
(i) First-time borrower means an individual who has no outstanding
balance of principal or interest on a Direct Loan Program or FFEL
Program loan on July 1, 2013, or on the date the borrower obtains a
Direct Loan Program loan after July 1, 2013.
(ii) Maximum eligibility period is a period of time, measured in
academic years, equal to 150 percent of the length of the educational
program, as published by the institution, in which the borrower is
currently enrolled.
(iii) Subsidized usage period is, except as provided in paragraph
(f)(4) of this section, a period of time measured in academic years and
rounded to the nearest tenth of a year calculated as the--
Number of days in the borrower's loan
period for a Direct Subsidized Loan
------------------------------------------------------------------------
Number of days in the academic year for annual loan limit purposes
for which the borrower receives
the Direct Subsidized Loan
(iv) Remaining eligibility period is the difference, measured in
academic years, between the borrower's maximum eligibility period and
the sum of the borrower's subsidized usage periods, except as provided
in paragraphs (f)(7)(ii) and (f)(7)(iii) of this section.
(2) Loss of eligibility for Direct Subsidized Loans. A first-time
borrower is not eligible for additional Direct Subsidized Loans when the
borrower has no remaining eligibility period. Such a borrower may still
receive Direct Unsubsidized Loans for which the borrower is otherwise
eligible.
(3) Borrower responsibility for accruing interest. (i)
Notwithstanding any provision of this part that provides for the
borrower to not be responsible for accruing interest on a Direct
Subsidized Loan or on the portion of a Direct Consolidation Loan that
repaid a Direct Subsidized Loan, and except as provided in paragraphs
(f)(6)(v) and (f)(7)(iv) of this section, a first-time borrower becomes
responsible for the interest that accrues on a previously received
Direct Subsidized Loan or on the portion of a Direct Consolidation Loan
that repaid a Direct Subsidized Loan beginning on the date--
(A) The borrower has no remaining eligibility period; and
(B) The borrower attends any undergraduate program or preparatory
coursework on at least a half-time basis at an eligible institution that
participates in the title IV, HEA programs.
(ii) The borrower continues to be responsible for the interest that
accrues on the portion of a Direct Consolidation Loan that repaid a
Direct Subsidized Loan for which the borrower previously became
responsible for accruing interest in accordance with paragraph (f)(3)(i)
of this section.
(iii) For any loan for which the borrower becomes responsible for
accruing interest in accordance with paragraph (f)(3)(i) of this
section, the borrower is responsible for only the interest that accrues
after the borrower meets the criteria in paragraph (f)(3)(i) of this
section and unpaid interest is capitalized in the same manner as for a
Direct Unsubsidized Loan.
(iv) A borrower who completes an undergraduate program and who has
not become responsible for accruing interest on Direct Subsidized Loans
as a result of attendance in that program does not become responsible
for accruing interest under paragraph (f)(3)(i) of this section on any
Direct Subsidized Loans received for attendance in any program prior to
completing that undergraduate program and for which the
[[Page 206]]
borrower has not previously become responsible for accruing interest,
regardless of subsequent attendance in any other program.
(4) Exceptions to the calculation of subsidized usage periods. (i)
For a first-time borrower who receives a Direct Subsidized Loan in an
amount that is equal to the full annual loan limit for a loan period
that is less than a full academic year in length, the subsidized usage
period is one year.
(ii) For a first-time borrower who is enrolled on a half-time or
three-quarter-time basis, the borrower's prorated subsidized usage
period is calculated by multiplying the borrower's subsidized usage
period by 0.5 or 0.75, respectively.
(5) Subsequent attendance in programs of greater duration. A first-
time borrower who subsequently attends a program that is longer than the
program the borrower previously attended--
(i) Is eligible for a Direct Subsidized Loan if the borrower's
remaining eligibility period is greater than zero; and
(ii) Regains eligibility for Direct Subsidized Loans if the borrower
previously lost eligibility for Direct Subsidized Loans in accordance
with paragraph (f)(2) of this section.
(6) Treatment of preparatory coursework. For first-time borrowers
who receive a Direct Subsidized Loan under 34 CFR 668.32(a)(1)(ii) who
are enrolled for no longer than one 12-month period in a course of study
necessary for enrollment in an eligible program--
(i) Direct Subsidized Loans received for such preparatory coursework
are included in the calculation of the borrower's subsidized usage
period;
(ii) The maximum eligibility period for preparatory coursework
necessary for enrollment in an undergraduate program is the maximum
eligibility period for the undergraduate program for which the
preparatory coursework is required;
(iii) The maximum eligibility period for preparatory coursework
necessary for enrollment in a graduate or professional program is the
maximum eligibility period for the undergraduate program for which the
borrower most recently received a Direct Subsidized Loan;
(iv) For enrollment in preparatory coursework necessary for
enrollment in an undergraduate program, the borrower becomes responsible
for accruing interest as described in paragraph (f)(3) of this section
only if the borrower has no remaining eligibility period in the program
for which the coursework is required; and
(v) Enrollment in preparatory coursework necessary for enrollment in
a graduate or professional program does not result in a borrower
becoming responsible for accruing interest as described in paragraph
(f)(3) of this section.
(7) Treatment of teacher certification programs for which an
institution does not award an academic credential. For first-time
borrowers who receive a Direct Subsidized Loan under 34 CFR
668.32(a)(1)(iii) who are enrolled at an eligible institution in a
program necessary for a professional credential or certification from a
State that is required for employment as a teacher in an elementary or
secondary school in that State but for which the institution awards no
academic credential--
(i) The borrower's maximum eligibility period for Direct Subsidized
Loans is a period of time equal to 150 percent of the length of the
teacher certification program, as published by the institution, in which
the borrower is currently enrolled;
(ii) For purposes of determining a borrower's remaining eligibility
period for such teacher certification programs, only Direct Subsidized
Loans the borrower received for enrollment in such programs are included
in the borrower's subsidized usage period;
(iii) For purposes of determining a borrower's remaining eligibility
period for programs other than a teacher certification program for which
an institution does not award an academic credential, any Direct
Subsidized Loans that the borrower received for enrollment in such a
teacher certification program are not included in a borrower's
subsidized usage period; and
(iv) Enrollment in such a teacher certification program does not
result in a borrower becoming responsible for accruing interest on any
Direct Subsidized Loan under paragraph (f)(3) of this section.
(8) Special admission degree programs. (i) For purposes of
calculating the
[[Page 207]]
maximum eligibility period, a bachelor's degree program that requires an
associate degree or the successful completion of at least two years of
postsecondary coursework as a prerequisite for admission has a program
length of four years.
(ii) For purposes of calculating the maximum eligibility period, a
selective admission associate degree program that requires an associate
degree or the successful completion of at least two years of
postsecondary coursework as a prerequisite for admission has a program
length of four years. For purposes of this paragraph (f)(8)(ii), a
selective admission associate degree program--
(A) Admits only a selected number of applicants based on additional
competitive criteria which may include entrance exam scores, class rank,
grade point average, written essays, or recommendation letters; and
(B) Provides the academic qualifications necessary for a profession
that requires licensure or a certification by the State.
(Authority: 20 U.S.C. 1087a et seq.)
[59 FR 61690, Dec. 1, 1994]
Editorial Note: For Federal Register citations affecting
Sec. 685.200, see the List of CFR Sections Affected, which appears in
the Finding Aids section of the printed volume and at www.fdsys.gov.
Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 685.200 was
amended by adding paragraphs (f)(3)(v) and (f)(4)(iii), eff. July 1,
2017. At 82 FR 27621, June 16, 2017, the effective date was delayed
indefinitely. For the convenience of the user, the added text is set
forth as follows:
Sec. 685.200 Borrower eligibility.
* * * * *
(f) * * *
(3) * * *
(v) A borrower who receives a closed school, false certification,
unpaid refund, or defense to repayment discharge that results in a
remaining eligibility period greater than zero is no longer responsible
for the interest that accrues on a Direct Subsidized Loan or on the
portion of a Direct Consolidation Loan that repaid a Direct Subsidized
Loan unless the borrower once again becomes responsible for the interest
that accrues on a previously received Direct Subsidized Loan or on the
portion of a Direct Consolidation Loan that repaid a Direct Subsidized
Loan, for the life of the loan, as described in paragraph (f)(3)(i) of
this section.
(4) * * *
(iii) For a first-time borrower who receives a closed school, false
certification, unpaid refund, or defense to repayment discharge on a
Direct Subsidized Loan or a portion of a Direct Consolidation Loan that
is attributable to a Direct Subsidized Loan, the Subsidized Usage Period
is reduced. If the Direct Subsidized Loan or a portion of a Direct
Consolidation Loan that is attributable to a Direct Subsidized Loan is
discharged in full, the Subsidized Usage Period of those loans is zero
years. If the Direct Subsidized Loan or a portion of a Direct
Consolidation Loan that is attributable to a Direct Subsidized Loan is
discharged in part, the Subsidized Usage Period may be reduced if the
discharge results in the inapplicability of paragraph (f)(4)(i) of this
section.
* * * * *
Sec. 685.201 Obtaining a loan.
(a) Application for a Direct Subsidized Loan or a Direct
Unsubsidized Loan. (1) To obtain a Direct Subsidized Loan or a Direct
Unsubsidized Loan, a student must complete a Free Application for
Federal Student Aid and submit it in accordance with instructions in the
application.
(2) If the student is eligible for a Direct Subsidized Loan or a
Direct Unsubsidized Loan, the school in which the student is enrolled
must perform the following functions:
(i) Create a loan origination record and transmit the record to the
Secretary.
(ii) Ensure that the loan is supported by a completed Master
Promissory Note (MPN) and, if applicable, transmit the MPN to the
Secretary.
(iii) In accordance with 34 CFR 668.162, draw down funds or receive
funds from the Secretary, and disburse the funds to the student.
(b) Application for a Direct PLUS Loan. (1) For a parent to obtain a
Direct PLUS Loan, the parent must complete the Direct PLUS Loan MPN and
the dependent student on whose behalf the parent is borrowing must
complete a Free Application for Federal Student Aid and submit it in
accordance with instructions in the application.
(2) For a graduate or professional student to apply for a Direct
PLUS Loan, the student must complete a
[[Page 208]]
Free Application for Federal Student Aid and submit it in accordance
with instructions in the application. The graduate or professional
student must also complete the Direct PLUS Loan MPN.
(3) For either a parent or student PLUS borrower, as applicable, the
school must complete its portion of the Direct PLUS Loan MPN and, if
applicable, submit it to the Secretary. The Secretary makes a
determination as to whether the parent or graduate or professional
student has an adverse credit history. The school performs the functions
described in paragraph (a)(2) of this section.
(c) Application for a Direct Consolidation Loan. (1) To obtain a
Direct Consolidation Loan, the applicant must complete the application
and promissory note and submit it to the Secretary. The application and
promissory note sets forth the terms and conditions of the Direct
Consolidation Loan and informs the applicant how to contact the
Secretary. The Secretary answers questions regarding the process of
applying for a Direct Consolidation Loan and provides information about
the terms and conditions of both Direct Consolidation Loans and the
types of loans that may be consolidated.
(2) Once the applicant has submitted the completed application and
promissory note to the Secretary, the Secretary makes the Direct
Consolidation Loan under the procedures specified in Sec. 685.220.
(Authority: 20 U.S.C. 1087a et seq., 1091a)
[64 FR 58965, Nov. 1, 1999, as amended at 65 FR 65629, Nov. 1, 2000; 71
FR 45711, Aug. 9, 2006; 78 FR 65825, Nov. 1, 2013]
Sec. 685.202 Charges for which Direct Loan Program borrowers are
responsible.
(a) Interest--(1) Interest rate for Direct Subsidized Loans and
Direct Unsubsidized Loans first disbursed before July 1, 1995. During
all periods, the interest rate during any twelve-month period beginning
on July 1 and ending on June 30 is determined on the June 1 immediately
preceding that period. The interest rate is equal to the bond equivalent
rate of 91-day Treasury bills auctioned at the final auction held prior
to that June 1 plus 3.1 percentage points, but does not exceed 8.25
percent.
(2) Interest rate for Direct Subsidized Loans and Direct
Unsubsidized Loans first disbursed on or after July 1, 1995, and before
July 1, 1998. (i) During the in-school, grace, and deferment periods.
The interest rate during any twelve-month period beginning on July 1 and
ending on June 30 is determined on the June 1 immediately preceding that
period. The interest rate is equal to the bond equivalent rate of 91-day
Treasury bills auctioned at the final auction held prior to that June 1
plus 2.5 percentage points, but does not exceed 8.25 percent.
(ii) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on
the June 1 immediately preceding that period. The interest rate is equal
to the bond equivalent rate of 91-day Treasury bills auctioned at the
final auction held prior to that June 1 plus 3.1 percentage points, but
does not exceed 8.25 percent.
(3) Interest Rate for Direct Subsidized Loans and Direct Subsidized
Loans first disbursed on or after July 1, 1998, and before July 1, 2006.
(i) During the in-school, grace, and deferment periods. The interest
rate during any twelve-month period beginning on July 1 and ending on
June 30 is determined on the June 1 immediately preceding that period.
The interest rate is equal to the bond equivalent rate of 91-day
Treasury bills auctioned at the final auction held prior to that June 1
plus 1.7 percentage points, but does not exceed 8.25 percent.
(ii) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on
the June 1 immediately preceding that period. The interest rate is equal
to the bond equivalent rate of 91-day Treasury bills auctioned at the
final auction held prior to that June 1 plus 2.3 percentage points, but
does not exceed 8.25 percent.
(4) Interest rate for Direct Subsidized Loans made to undergraduate
students for which the first disbursement is made on or after July 1,
2006, and before July 1,
[[Page 209]]
2013. For a loan for which the first disbursement is made:
(i) On or after July 1, 2006, and before July 1, 2008, the interest
rate is 6.8 percent on the unpaid principal balance of the loan.
(ii) On or after July 1, 2008, and before July 1, 2009, the interest
rate is 6 percent on the unpaid principal balance of the loan.
(iii) On or after July 1, 2009, and before July 1, 2010, the
interest rate is 5.6 percent on the unpaid principal balance of the
loan.
(iv) On or after July 1, 2010, and before July 1, 2011, the interest
rate is 4.5 percent on the unpaid principal balance of the loan.
(v) On or after July 1, 2011, and before July 1, 2013, the interest
rate is 3.4 percent on the unpaid balance of the loan.
(5) Interest rate for Direct Subsidized Loans made to graduate or
professional students for which the first disbursement is made on or
after July 1, 2006, and before July 1, 2012. The interest rate is 6.8
percent.
(6) Interest rate for Direct Unsubsidized Loans first disbursed on
or after July 1, 2006, and before July 1, 2013. The interest rate is 6.8
percent.
(7) Interest rate for Direct Subsidized Loans and Direct
Unsubsidized Loans made to undergraduate students for which the first
disbursement is made on or after July 1, 2013. The interest rate for
loans first disbursed during any 12-month period beginning on July 1 and
ending on June 30 is determined on the June 1 preceding that period and
is a fixed rate for the life of the loan. The interest rate is the
lesser of--
(i) A rate equal to the high yield of the 10-year Treasury note
auctioned at the final auction held prior to the June 1 preceding the
12-month period, plus 2.05 percentage points, or
(ii) 8.25 percent.
(8) Interest rate for Direct Unsubsidized Loans made to graduate or
professional students for which the first disbursement is made on or
after July 1, 2013. The interest rate for loans first disbursed during
any 12-month period beginning on July 1 and ending on June 30 is
determined on the June 1 preceding that period and is a fixed rate for
the life of the loan. The interest rate is the lesser of--
(i) A rate equal to the high yield of the 10-year Treasury note
auctioned at the final auction held prior to the June 1 preceding the
12-month period, plus 3.6 percentage points, or
(ii) 9.5 percent.
(9) Interest rate for Direct PLUS Loans. (i) Direct PLUS Loans first
disbursed before July 1, 1998. (A) Interest rates for periods ending
before July 1, 2001. During all periods, the interest rate during any
twelve-month period beginning on July 1 and ending on June 30 is
determined on the June 1 preceding that period. The interest rate is
equal to the bond equivalent rate of 52-week Treasury bills auctioned at
the final auction held prior to that June 1 plus 3.1 percentage points,
but does not exceed 9 percent.
(B) Interest rates for periods beginning on or after July 1, 2001.
During all periods, the interest rate during any twelve-month period
beginning on July 1 and ending on June 30 is determined on the June 26
preceding that period. The interest rate is equal to the weekly average
1-year constant maturity Treasury yield, as published by the Board of
Governors of the Federal Reserve System, for the last calendar week
ending on or before that June 26 plus 3.1 percentage points, but does
not exceed 9 percent.
(ii) Direct PLUS Loans first disbursed on or after July 1, 1998, and
before July 1, 2006. During all periods, the interest rate during any
twelve-month period beginning on July 1 and ending on June 30 is
determined on the June 1 preceding that period. The interest rate is
equal to the bond equivalent rate of 91-day Treasury bills auctioned at
the final auction held prior to that June 1 plus 3.1 percentage points,
but does not exceed 9 percent.
(iii) Direct PLUS Loans first disbursed on or after July 1, 2006,
and before July 1, 2013. The interest rate is 7.9 percent.
(iv) Direct PLUS Loans first disbursed on or after July 1, 2013. The
interest rate for loans first disbursed during any 12-month period
beginning on July 1 and ending on June 30 is determined on the June 1
preceding that period and is a fixed rate for the life of the loan. The
interest rate is the lesser of--
(A) A rate equal to the high yield of the 10-year Treasury note
auctioned at
[[Page 210]]
the final auction held prior to the June 1 preceding the 12-month
period, plus 4.6 percentage points, or
(B) 10.5 percent.
(10) Interest rate for Direct Consolidation Loans--(i) Interest rate
for Direct Subsidized Consolidation Loans and Direct Unsubsidized
Consolidation Loans. (A) Loans first disbursed before July 1, 1995. The
interest rate is the rate established for Direct Subsidized Loans and
Direct Unsubsidized Loans in paragraph (a)(1) of this section.
(B) Loans first disbursed on or after July 1, 1995, and before July
1, 1998. The interest rate is the rate established for Direct Subsidized
Loans and Direct Unsubsidized Loans in paragraph (a)(2) of this section.
(C) Loans for which the first disbursement is made on or after July
1, 1998, and prior to October 1, 1998, and loans for which the
disbursement is made on or after October 1, 1998, for which the
consolidation application was received by the Secretary before October
1, 1998. The interest rate is the rate established for Direct Subsidized
Loans and Direct Unsubsidized Loans in paragraph (a)(3) of this section.
(D) Loans for which the consolidation application is received by the
Secretary on or after October 1, 1998, and before February 1, 1999.
During all periods, the interest rate during any twelve-month period
beginning on July 1 and ending on June 30 is determined on the June 1
immediately preceding that period. The interest rate is equal to the
bond equivalent rate of 91-day Treasury bills auctioned at the final
auction held prior to that June 1 plus 2.3 percentage points, but does
not exceed 8.25 percent.
(E) Loans for which the consolidation application is received by the
Secretary on or after February 1, 1999, and before July 1, 2013. During
all periods, the interest rate is based on the weighted average of the
interest rates on the loans being consolidated, rounded to the nearest
higher one-eighth of one percent, but does not exceed 8.25 percent.
(F) Loans for which the consolidation application is received by the
Secretary on or after July 1, 2013. During all periods, the interest
rate is based on the weighted average of the interest rates on the loans
being consolidated, rounded to the nearest higher one-eighth of one
percent.
(ii) Interest rate for Direct PLUS Consolidation Loans. (A) Loans
first disbursed before July 1, 1998. The interest rate is the rate
established for Direct PLUS Loans in paragraph (a)(9)(i) of this
section.
(B) Loans for which the first disbursement is made on or after July
1, 1998, and prior to October 1, 1998, and loans for which the
disbursement is made on or after October 1, 1998, for which the
consolidation application was received by the Secretary before October
1, 1998. The interest rate is the rate established for Direct PLUS Loans
in paragraph (a)(9)(ii) of this section.
(C) Loans for which the consolidation application is received by the
Secretary on or after October 1, 1998, and before February 1, 1999.
During all periods, the interest rate during any twelve-month period
beginning on July 1 and ending on June 30 is determined on the June 1
immediately preceding that period. The interest rate is equal to the
bond equivalent rate of 91-day Treasury bills auctioned at the final
auction held prior to that June 1 plus 2.3 percentage points, but does
not exceed 8.25 percent.
(D) Loans for which the consolidation application is received by the
Secretary on or after February 1, 1999, and before July 1, 2006. During
all periods, the interest rate is based on the weighted average of the
interest rates on the loans being consolidated, rounded to the nearest
higher one-eighth of one percent, but does not exceed 8.25 percent.
(11) Applicability of the Servicemembers Civil Relief Act (SCRA)(50
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through
(10) of this section, upon the Secretary's receipt of evidence of the
borrower's military service, the maximum interest rate under 50 U.S.C.
527, App. section 207(a), on Direct Loan Program loans made prior to the
borrower entering military service status is six percent while the
borrower is in military service. For purposes of this paragraph, the
interest rate includes any other charges or fees applied to the loan.
For purposes of this paragraph (a)(11), the term ``military service''
means--
[[Page 211]]
(i) In the case of a servicemember who is a member of the Army,
Navy, Air Force, Marine Corps, or Coast Guard--
(A) Active duty, meaning full-time duty in the active military
service of the United States. Such term includes full-time training
duty, annual training duty, and attendance, while in the active military
service, at a school designated as a service school by law or by the
Secretary of the military department concerned. Such term does not
include full-time National Guard duty.
(B) In the case of a member of the National Guard, including service
under a call to active service, which means service on active duty or
full-time National Guard duty, authorized by the President or the
Secretary of Defense for a period of more than 30 consecutive days for
purposes of responding to a national emergency declared by the President
and supported by Federal funds;
(ii) In the case of a servicemember who is a commissioned officer of
the Public Health Service or the National Oceanic and Atmospheric
Administration, active service; and
(iii) Any period during which a servicemember is absent from duty on
account of sickness, wounds, leave, or other lawful cause.
(b) Capitalization. (1) The Secretary may add unpaid accrued
interest to the borrower's unpaid principal balance. This increase in
the principal balance of a loan is called ``capitalization.''
(2) For a Direct Unsubsidized Loan, a Direct Unsubsidized
Consolidation Loan that qualifies for a grace period under the
regulations that were in effect for consolidation applications received
before July 1, 2006, a Direct PLUS Loan, or for a Direct Subsidized Loan
for which the first disbursement is made on or after July 1, 2012, and
before July 1, 2014, the Secretary may capitalize the unpaid interest
that accrues on the loan when the borrower enters repayment.
(3) Notwithstanding Sec. 685.208(l)(5) and Sec. 685.209(b)(3)(iv),
for a Direct Loan not eligible for interest subsidies during periods of
deferment, and for all Direct Loans during periods of forbearance, the
Secretary capitalizes the unpaid interest that has accrued on the loan
upon the expiration of the deferment or forbearance.
(4) Except as provided in paragraph (b)(3) of this section and in
Secs. 685.208(l)(5) and 685.209(b)(3)(iv), the Secretary annually
capitalizes unpaid interest when the borrower is paying under the
alternative repayment plan or the income-contingent repayment plan
described in Sec. 685.209(b) and the borrower's scheduled payments do
not cover the interest that has accrued on the loan.
(5) The Secretary may capitalize unpaid interest when the borrower
defaults on the loan.
(c) Loan fee for Direct Subsidized, Direct Unsubsidized, and Direct
PLUS Loans. The Secretary--
(1)(i) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed prior to February 8, 2006, charges a borrower a loan fee not
to exceed 4 percent of the principal amount of the loan;
(ii) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after February 8, 2006, but before July 1, 2007, charges
a borrower a loan fee not to exceed 3 percent of the principal amount of
the loan;
(iii) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after July 1, 2007, but before July 1, 2008, charges a
borrower a loan fee not to exceed 2.5 percent of the principal amount of
the loan;
(iv) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after July 1, 2008, but before July 1, 2009, charges the
borrower a loan fee not to exceed 2 percent of the principal amount of
the loan;
(v) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after July 1, 2009, but before July 1, 2010, charges the
borrower a loan fee not to exceed 1.5 percent of the principal amount of
the loan;
(vi) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after July 1, 2010, charges the borrower a loan fee not
to exceed 1 percent of the principal amount of the loan; and
(vii) Charges a borrower a loan fee of four percent of the principal
amount of the loan on a Direct PLUS loan.
(2) Deducts the loan fee from the proceeds of the loan;
[[Page 212]]
(3) In the case of a loan disbursed in multiple installments,
deducts a pro rated portion of the fee from each disbursement; and
(4) Applies to a borrower's loan balance the portion of the loan fee
previously deducted from the loan that is attributable to any portion of
the loan that is--
(i) Repaid or returned within 120 days of disbursement, unless--
(A) The borrower has no Direct Loans in repayment status and has
requested, in writing, that the repaid or returned funds be used for a
different purpose; or
(B) The borrower has a Direct Loan in repayment status, in which
case the payment is applied in accordance with Sec. 685.211(a) unless
the borrower has requested, in writing, that the repaid or returned
funds be applied as a cancellation of all or part of the loan; or
(ii) Returned by a school in order to comply with the Act or with
applicable regulations.
(d) Late charge. (1) The Secretary may require the borrower to pay a
late charge of up to six cents for each dollar of each installment or
portion thereof that is late under the circumstances described in
paragraph (d)(2) of this section.
(2) The late charge may be assessed if the borrower fails to pay all
or a portion of a required installment payment within 30 days after it
is due.
(e)(1) Collection charges before default. Notwithstanding any
provision of State law, the Secretary may require that the borrower or
any endorser pay costs incurred by the Secretary or the Secretary's
agents in collecting installments not paid when due. These charges do
not include routine collection costs associated with preparing letters
or notices or with making personal contacts with the borrower (e.g.,
local and long-distance telephone calls).
(2) Collection charges after default. If a borrower defaults on a
Direct Loan, the Secretary assesses collection costs on the basis of 34
CFR 30.60.
(Authority: 20 U.S.C. 1087a et seq., 1091a)
[59 FR 61690, Dec. 1, 1994, as amended at 61 FR 29900, June 12, 1996; 62
FR 63434, Nov. 28, 1997; 64 FR 46254, Aug. 24, 1999; 66 FR 34765, June
29, 2001; 71 FR 45711, Aug. 9, 2006; 72 FR 62009, Nov. 1, 2007; 74 FR
56001, Oct. 29, 2009; 77 FR 66135, Nov. 1, 2012; 78 FR 28986, May 16,
2013; 78 FR 65825, Nov. 1, 2013; 80 FR 67238, Oct. 30, 2015]
Sec. 685.203 Loan limits.
(a) Direct Subsidized Loans. (1) In the case of an undergraduate
student who has not successfully completed the first year of a program
of undergraduate education, the total amount the student may borrow for
any academic year of study under the Direct Subsidized Loan Program may
not exceed the following:
(i) $3,500 for a program of study of at least a full academic year
in length.
(ii) For a one-year program of study with less than a full academic
year remaining, the amount that is the same ratio to $3,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.000
(iii) For a program of study that is less than a full academic year
in length, the amount that is the same ratio to $3,500 as the lesser of
the--
[[Page 213]]
[GRAPHIC] [TIFF OMITTED] TR01NO99.001
(2) In the case of an undergraduate student who has successfully
completed the first year of an undergraduate program but has not
successfully completed the second year of an undergraduate program, the
total amount the student may borrow for any academic year of study under
the Direct Subsidized Loan Program may not exceed the following:
(i) $4,500 for a program of study of at least a full academic year
in length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $4,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.002
(3) In the case of an undergraduate student who has successfully
completed the first and second years of a program of study of
undergraduate education but has not successfully completed the remainder
of the program, the total amount the student may borrow for any academic
year of study under the Direct Subsidized Loan Program may not exceed
the following:
(i) $5,500 for a program of study of at least an academic year in
length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.003
(4) In the case of a student who has an associate or baccalaureate
degree which is required for admission into a program and who is not a
graduate or professional student, the total amount the student may
borrow for any academic year of study may not exceed the amounts in
paragraph (a)(3) of this section.
(5) In the case of a graduate or professional student for periods of
enrollment beginning before July 1, 2012, the total amount the student
may borrow for any academic year of study under the Direct Subsidized
Loan Program may not exceed $8,500.
(6) In the case of a student enrolled for no longer than one
consecutive 12-month period in a course of study necessary for
enrollment in a program leading to a degree or a certificate, the total
amount the student may borrow for any academic year of study under the
Direct Subsidized Loan Program may not exceed the following:
(i) $2,625 for coursework necessary for enrollment in an
undergraduate degree or certificate program.
(ii) $5,500 for coursework necessary for enrollment in a graduate or
professional degree or certification program for a student who has
obtained a baccalaureate degree.
[[Page 214]]
(7) In the case of a student who has obtained a baccalaureate degree
and is enrolled or accepted for enrollment in coursework necessary for a
professional credential or certification from a State that is required
for employment as a teacher in an elementary or secondary school in that
State, the total amount the student may borrow for any academic year of
study under the Direct Subsidized Loan Program may not exceed $5,500.
(8) Except as provided in paragraph (a)(4) of this section, an
undergraduate student who is enrolled in a program that is one academic
year or less in length may not borrow an amount for any academic year of
study that exceeds the amounts in paragraph (a)(1) of this section.
(9) Except as provided in paragraph (a)(4) of this section--
(i) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has not successfully
completed the first year of that program may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph (a)(1)
of this section.
(ii) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has successfully completed
the first year of that program, but has not successfully completed the
second year of the program, may not borrow an amount for any academic
year of study that exceeds the amounts in paragraph (a)(2) of this
section.
(b) Direct Unsubsidized Loans. (1) In the case of a dependent
undergraduate student, except as provided in paragraph (c)(3) of this
section, the total amount a student may borrow for any academic year of
study under the Direct Unsubsidized Loan Program is the same as the
amount determined under paragraph (a) of this section, less any amount
received under the Direct Subsidized Loan Program, plus--
(i) $2,000 for a program of study of at least a full academic year
in length.
(ii) For a program of study that is one academic year or more in
length with less than a full academic year remaining, the amount that is
the same ratio to $2,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.004
(iii) For a program of study that is less than a full academic year
in length, the amount that is the same ratio to $2,000 as the lesser of
the--
[[Page 215]]
[GRAPHIC] [TIFF OMITTED] TR01NO13.005
(2)(i) In the case of an independent undergraduate student or
certain dependent undergraduate students under the conditions specified
in paragraph (c)(1)(ii) of this section, except as provided in paragraph
(c)(3) of this section, the total amount the student may borrow for any
period of enrollment under the Direct Unsubsidized Loan Program may not
exceed the amounts determined under paragraph (a) of this section less
any amount received under the Direct Subsidized Loan Program in
combination with the amounts determined under paragraph (c) of this
section.
(ii) In the case of a graduate or professional student for a period
of enrollment beginning before July 1, 2012, the total amount the
student may borrow for any academic year of study under the Direct
Unsubsidized Loan Program may not exceed the amount determined under
paragraph (a)(5) of this section, less any amount received under the
Direct Subsidized Loan Program.
(iii) In the case of a graduate or professional student for a period
of enrollment beginning on or after July 1, 2012, the total amount the
student may borrow for any academic year of study under the Direct
Unsubsidized Loan Program may not exceed $8,500.
(c) Additional eligibility for Direct Unsubsidized Loans. (1)(i) An
independent undergraduate student, graduate or professional student, and
certain dependent undergraduate students may borrow amounts under the
Direct Unsubsidized Loan Program in addition to any amount borrowed
under paragraph (b) of this section, except as provided in paragraph
(c)(3) for certain dependent undergraduate students.
(ii) In order for a dependent undergraduate student to receive this
additional loan amount, the financial aid administrator must determine
that the student's parent likely will be precluded by exceptional
circumstances from borrowing under the Direct PLUS Loan Program and the
student's family is otherwise unable to provide the student's expected
family contribution. The financial aid administrator must base the
determination on a review of the family financial information provided
by the student and consideration of the student's debt burden and must
document the determination in the school's file.
(iii) ``Exceptional circumstances'' under paragraph (c)(1)(ii) of
this section include but are not limited to circumstances in which the
student's parent receives only public assistance or disability benefits,
the parent is incarcerated, the parent has an adverse credit history, or
the parent's whereabouts are unknown. A parent's refusal to borrow a
Direct PLUS Loan does not constitute ``exceptional circumstances.''
(2) The additional amount that a student described in paragraph
(c)(1)(i) of
[[Page 216]]
this section may borrow under the Direct Unsubsidized Loan Program for
any academic year of study may not exceed the following:
(i) In the case of a student who has not successfully completed the
first year of a program of undergraduate education--
(A) $6,000 for a program of study of at least a full academic year
in length.
(B) For a one-year program of study with less than a full academic
year remaining, the amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.005
(C) For a program of study that is less than a full academic year in
length, an amount that is the same ratio to $6,000 as the lesser of
the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.006
(ii) In the case of a student who has completed the first year of a
program of undergraduate education but has not successfully completed
the second year of a program of undergraduate education--
(A) $6,000 for a program of study of at least a full academic year
in length.
(B) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.007
(iii) In the case of a student who has successfully completed the
second year of a program of undergraduate education but has not
completed the remainder of the program of study--
(A) $7,000 for a program of study of at least a full academic year
in length.
(B) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $7,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.008
(iv) In the case of a student who has an associate or baccalaureate
degree which is required for admission into a program and who is not a
graduate or
[[Page 217]]
professional student, the total amount the student may borrow for any
academic year of study may not exceed the amounts in paragraph
(c)(2)(iii) of this section.
(v) In the case of a graduate or professional student, $12,000.
(vi) In the case of a student enrolled for no longer than one
consecutive 12-month period in a course of study necessary for
enrollment in a program leading to a degree or a certificate--
(A) $6,000 for coursework necessary for enrollment in an
undergraduate degree or certificate program.
(B) $7,000 for coursework necessary for enrollment in a graduate or
professional degree or certification program for a student who has
obtained a baccalaureate degree.
(vii) In the case of a student who has obtained a baccalaureate
degree and is enrolled or accepted for enrollment in coursework
necessary for a professional credential or certification from a State
that is required for employment as a teacher in an elementary or
secondary school in that State, $7,000.
(viii) Except as provided in paragraph (c)(2)(iv) of this section,
an undergraduate student who is enrolled in a program that is one
academic year or less in length may not borrow an amount for any
academic year of study that exceeds the amounts in paragraph (c)(2)(i)
of this section.
(ix) Except as provided in paragraph (c)(2)(iv) of this section--
(A) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has not successfully
completed the first year of that program may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph
(c)(2)(i) of this section.
(B) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has successfully completed
the first year of that program, but has not successfully completed the
second year of the program, may not borrow an amount for any academic
year of study that exceeds the amounts in paragraph (c)(2)(ii) of this
section.
(3) A dependent undergraduate student who qualifies for additional
Direct Unsubsidized Loan amounts under this section in accordance with
paragraph (c)(1)(ii) is not eligible to receive the additional Direct
Unsubsidized Loan amounts provided under paragraph (b)(1)(ii) of this
section.
(d) Aggregate limits for subsidized loans. The aggregate unpaid
principal amount of all Direct Subsidized Loans and Subsidized Federal
Stafford Loans made to a student but excluding the amount of capitalized
interest may not exceed the following:
(1) $23,000 in the case of any student who has not successfully
completed a program of study at the undergraduate level.
(2) $65,500 in the case of a graduate or professional student,
including loans for undergraduate study.
(e) Aggregate limits for unsubsidized loans. The total amount of
Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, and
Federal SLS Loans, excluding the amount of capitalized interest, may not
exceed the following:
(1) For a dependent undergraduate student, $31,000 minus any Direct
Subsidized Loan and Subsidized Federal Stafford Loan amounts, unless the
student qualifies under paragraph (c) of this section for additional
eligibility or qualified for that additional eligibility under the
Federal SLS Program.
(2) For an independent undergraduate or a dependent undergraduate
who qualifies for additional eligibility under paragraph (c) of this
section or qualified for this additional eligibility under the Federal
SLS Program, $57,500 minus any Direct Subsidized Loan and Subsidized
Federal Stafford Loan amounts.
(3) For a graduate or professional student, $138,500, including any
loans for undergraduate study, minus any Direct Subsidized Loan,
Subsidized Federal Stafford Loan, and Federal SLS Program loan amounts.
(f) Direct PLUS Loans annual limit. The total amount of all Direct
PLUS Loans that a parent or parents may borrow on behalf of each
dependent student, or that a graduate or professional student may
borrow, for any academic year of study may not exceed the cost of
attendance minus other estimated financial assistance for the student.
[[Page 218]]
(g) Direct PLUS Loans aggregate limit. The total amount of all
Direct PLUS Loans that a parent or parents may borrow on behalf of each
dependent student, or that a graduate or professional student may
borrow, for enrollment in an eligible program of study may not exceed
the student's cost of attendance minus other estimated financial
assistance for that student for the entire period of enrollment.
(h) Loan limit period. The annual loan limits apply to an academic
year, as defined in 34 CFR 668.3.
(i) Treatment of Direct Consolidation Loans and Federal
Consolidation Loans. The percentage of the outstanding balance on Direct
Consolidation Loans or Federal Consolidation Loans counted against a
borrower's aggregate loan limits is calculated as follows:
(1) For Direct Subsidized Loans, the percentage equals the
percentage of the original amount of the Direct Consolidation Loan or
Federal Consolidation Loan attributable to the Direct Subsidized and
Subsidized Federal Stafford Loans.
(2) For Direct Unsubsidized Loans, the percentage equals the
percentage of the original amount of the Direct Consolidation Loan or
Federal Consolidation Loan attributable to the Direct Unsubsidized,
Federal SLS, and Unsubsidized Federal Stafford Loans.
(j) Maximum loan amounts. In no case may a Direct Subsidized, Direct
Unsubsidized, or Direct PLUS Loan amount exceed the student's estimated
cost of attendance for the period of enrollment for which the loan is
intended, less--
(1) The student's estimated financial assistance for that period;
and
(2) In the case of a Direct Subsidized Loan, the borrower's expected
family contribution for that period.
(k) Any TEACH Grants that have been converted to Direct Unsubsidized
Loans are not counted against any annual or aggregate loan limits under
this section.
(Authority: 20 U.S.C. 1070g, 1087a, et seq.)
[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58966, Nov. 1, 1999; 67
FR 67081, Nov. 1, 2002; 68 FR 75430, Dec. 31, 2003; 71 FR 45711, Aug. 9,
2006; 71 FR 64399, Nov. 1, 2006; 73 FR 35495, June 23, 2008; 74 FR
56001, Oct. 29, 2009; 78 FR 65827, Nov. 1, 2013]
Sec. 685.204 Deferment.
(a) General. (1) A Direct Subsidized Loan or Direct Subsidized
Consolidation Loan borrower who meets the requirements described in
paragraphs (b), (d), (e), (f), (g), (h), (i), or (j) of this section is
eligible for a deferment during which periodic installments of principal
and interest need not be paid.
(2) A Direct Unsubsidized Loan, Direct Unsubsidized Consolidation
Loan, Direct PLUS Loan, or Direct PLUS Consolidation Loan borrower who
meets the requirements described in paragraphs (b) through (j) of this
section is eligible for a deferment during which periodic installments
of principal need not be paid but interest does accrue and is
capitalized or paid by the borrower. At or before the time a deferment
is granted, the Secretary provides information, including an example, to
assist the borrower in understanding the impact of capitalization of
accrued, unpaid interest on the borrower's loan principal and on the
total amount of interest to be paid over the life of the loan.
(3) A borrower whose loan is in default is not eligible for a
deferment, unless the borrower has made payment arrangements
satisfactory to the Secretary.
(4)(i) To receive a deferment, except as provided for in-school
deferments under paragraphs (b)(2)(ii) through (iv) of this section, the
borrower must request the deferment and, except as provided in paragraph
(a)(5)(i) of this section, provide the Secretary with all information
and documents required to establish eligibility for the deferment.
(ii) In the case of a military service deferment under paragraph (h)
of this section, a borrower's representative may request the deferment
and provide the required information and documents on behalf of the
borrower. If the Secretary grants a military service deferment based on
a request from a borrower's representative, the Secretary notifies the
borrower that the deferment has been granted and that the borrower has
the option to cancel the deferment and continue to make payments on the
loan. The Secretary may also notify the borrower's representative of the
outcome of the deferment request.
[[Page 219]]
(5)(i) After receiving a borrower's written or verbal request for a
deferment, the Secretary may grant a graduate fellowship deferment under
paragraph (d), a rehabilitation training deferment under paragraph (e),
an unemployment deferment under paragraph (f), an economic hardship
deferment under paragraph (g), a military service deferment under
paragraph (h), or a post-active duty student deferment under paragraph
(i) of this section if the Secretary confirms that the borrower has
received a deferment on a FFEL Program loan for the same reason and
during the same time period.
(ii) The Secretary will grant a deferment based on the information
obtained under paragraph (a)(5)(i) of this section when determining a
borrower's eligibility for a deferment, unless the Secretary, as of the
date of the determination, has information indicating that the borrower
does not qualify for the deferment. The Secretary will resolve any
discrepant information before granting a deferment under paragraph
(a)(5)(i) of this section.
(iii) If the Secretary grants a deferment under paragraph (a)(5)(i)
of this section, the Secretary notifies the borrower that the deferment
has been granted and that the borrower has the option to cancel the
deferment and continue to make payments on the loan.
(b) In-school deferment. (1) A Direct Loan borrower is eligible for
a deferment during any period during which--
(i) The borrower is carrying at least one-half the normal full-time
work load for the course of study that the borrower is pursuing, as
determined by the eligible school the borrower is attending; and
(ii) The borrower is not serving in a medical internship or
residency program, except for a residency program in dentistry.
(2) For the purpose of paragraph (b)(1) of this section, the
Secretary processes a deferment when--
(i) The borrower submits a request to the Secretary along with
documentation verifying the borrower's eligibility;
(ii) The Secretary receives information from the borrower's school
indicating that the borrower is eligible to receive a new loan;
(iii) The Secretary receives student status information from the
borrower's school, either directly or indirectly, indicating that the
borrower is enrolled on at least a half-time basis; or
(iv) The Secretary confirms a borrower's half-time enrollment status
through the use of the National Student Loan Data System if requested to
do so by the school the borrower is attending.
(3)(i) Upon notification by the Secretary that a deferment has been
granted based on paragraph (b)(2)(ii), (iii), or (iv) of this section,
the borrower has the option to cancel the deferment and continue to make
payments on the loan.
(ii) If the borrower elects to cancel the deferment and continue to
make payments on the loan, the borrower has the option to make the
principal and interest payments that were deferred. If the borrower does
not make the payments, the Secretary applies a deferment for the period
in which payments were not made and capitalizes the interest.
(c) In-school deferments for Direct PLUS Loan borrowers with loans
first disbursed on or after July 1, 2008. (1)(i) A student Direct PLUS
Loan borrower is eligible for a deferment on a Direct PLUS Loan first
disbursed on or after July 1, 2008 during the six-month period that
begins on the day after the student ceases to be enrolled on at least a
half-time basis at an eligible institution.
(ii) If the Secretary grants an in-school deferment to a student
Direct PLUS Loan borrower in accordance with Sec. 685.204(b)(2)(ii),
(iii), or (iv), the deferment period for a Direct PLUS Loan first
disbursed on or after July 1, 2008 includes the six-month post-
enrollment period described in paragraph (c)(1)(i) of this section.
(2) A parent Direct PLUS Loan borrower is eligible for a deferment
on a Direct PLUS Loan first disbursed on or after July 1, 2008--
(i) Upon the request of the borrower, during the period when the
student on whose behalf the loan was obtained is
[[Page 220]]
enrolled at an eligible institution on at least a half-time basis; and
(ii) Upon the request of the borrower, during the six-month period
that begins on the later of the day after the student on whose behalf
the loan was obtained ceases to be enrolled on at least a half-time
basis or, if the parent borrower is also a student, the day after the
parent borrower ceases to be enrolled on at least a half-time basis.
(d) Graduate fellowship deferment. (1) A Direct Loan borrower is
eligible for a deferment during any period in which an authorized
official of the borrower's graduate fellowship program certifies that
the borrower is pursuing a course of study pursuant to an eligible
graduate fellowship program in accordance with paragraph (d)(2) of this
section.
(2)(i) To qualify for a deferment under paragraph (d)(1) of this
section, a borrower must--
(A) Hold at least a baccalaureate degree conferred by an institution
of higher education;
(B) Have been accepted or recommended by an institution of higher
education for acceptance on a full-time basis into an eligible graduate
fellowship program, as defined in paragraph (d)(2)(ii) of this section;
and
(C) Not be serving in a medical internship or residency program,
except for a residency program in dentistry.
(ii) An eligible graduate fellowship program is a fellowship program
that--
(A) Provides sufficient financial support to graduate fellows to
allow for full-time study for at least six months;
(B) Requires a written statement from each applicant explaining the
applicant's objectives before the award of that financial support;
(C) Requires a graduate fellow to submit periodic reports, projects,
or evidence of the fellow's progress; and
(D) In the case of a course of study at a foreign university,
accepts the course of study for completion of the fellowship program.
(e) Rehabilitation training program deferment. (1) A Direct Loan
borrower is eligible for a deferment during any period in which an
authorized official of the borrower's rehabilitation training program
certifies that the borrower is pursuing an eligible rehabilitation
training program for individuals with disabilities in accordance with
paragraph (e)(2) of this section.
(2) For purposes of paragraph (e)(1) of this section, an eligible
rehabilitation training program for disabled individuals is a program
that--
(i) Is licensed, approved, certified, or otherwise recognized as
providing rehabilitation training to disabled individuals by--
(A) A State agency with responsibility for vocational rehabilitation
programs;
(B) A State agency with responsibility for drug abuse treatment
programs;
(C) A State agency with responsibility for mental health services
programs;
(D) A State agency with responsibility for alcohol abuse treatment
programs; or
(E) The Department of Veterans Affairs; and
(ii) Provides or will provide the borrower with rehabilitation
services under a written plan that--
(A) Is individualized to meet the borrower's needs;
(B) Specifies the date on which the services to the borrower are
expected to end; and
(C) Is structured in a way that requires a substantial commitment by
the borrower to his or her rehabilitation. The Secretary considers a
substantial commitment by the borrower to be a commitment of time and
effort that normally would prevent an individual from engaging in full-
time employment, either because of the number of hours that must be
devoted to rehabilitation or because of the nature of the
rehabilitation. For the purpose of this paragraph, full-time employment
involves at least 30 hours of work per week and is expected to last at
least three months.
(f) Unemployment deferment. (1) A Direct Loan borrower is eligible
for a deferment during periods that, collectively, do not exceed three
years in which the borrower is seeking and unable to find full-time
employment.
(2) A borrower qualifies for an unemployment deferment by--
(i) Providing evidence of eligibility for unemployment benefits to
the Secretary; or
[[Page 221]]
(ii) Providing to the Secretary a written certification, or an
equivalent as approved by the Secretary, that--
(A) The borrower has registered with a public or private employment
agency, if one is available to the borrower within a 50-mile radius of
the borrower's current address; and
(B) For all requests beyond the initial request, the borrower has
made at least six diligent attempts during the preceding six-month
period to secure full-time employment.
(3) For purposes of obtaining an unemployment deferment under
paragraph (f)(2)(ii) of this section, the following rules apply:
(i) A borrower may qualify for an unemployment deferment whether or
not the borrower has been previously employed.
(ii) An unemployment deferment is not justified if the borrower
refuses to seek or accept employment in kinds of positions or at salary
and responsibility levels for which the borrower feels overqualified by
virtue of education or previous experience.
(iii) Full-time employment involves at least 30 hours of work a week
and is expected to last at least three months.
(iv) The initial period of unemployment deferment may be granted for
a period of unemployment beginning up to six months before the date the
Secretary receives the borrower's request, and may be granted for up to
six months after that date.
(4) The Secretary does not grant an unemployment deferment beyond
the date that is six months after the date the borrower provides
evidence of the borrower's eligibility for unemployment insurance
benefits under paragraph (f)(2)(i) of this section or the date the
borrower provides the written certification, or an approved equivalent,
under paragraph (f)(2)(ii) of this section.
(g) Economic hardship deferment. (1)(i) A Direct Loan borrower is
eligible for a deferment during periods that, collectively, do not
exceed three years in which the borrower has experienced or will
experience an economic hardship in accordance with paragraph (g)(2) of
this section.
(ii) An economic hardship deferment is granted for periods of up to
one year at a time, except that a borrower who receives a deferment
under paragraph (g)(2)(iv) of this section may receive an economic
hardship deferment for the lesser of the borrower's full term of service
in the Peace Corps or the borrower's remaining period of economic
hardship deferment eligibility under the 3-year maximum.
(2) A borrower qualifies for an economic hardship deferment if the
borrower--
(i) Has been granted an economic hardship deferment under either the
FFEL or the Federal Perkins Loan programs for the period of time for
which the borrower has requested an economic hardship deferment for his
or her Direct Loan;
(ii) Is receiving payment under a Federal or State public assistance
program, such as Aid to Families with Dependent Children, Supplemental
Security Income, Food Stamps, or State general public assistance;
(iii) Is working full-time (as defined in paragraph (g)(3)(iii) of
this section) and has a monthly income (as defined in paragraph
(g)(3)(iv) of this section) that does not exceed the greater of (as
calculated on a monthly basis)--
(A) The minimum wage rate described in section 6 of the Fair Labor
Standards Act of 1938; or
(B) An amount equal to 150 percent of the poverty guideline
applicable to the borrower's family size (as defined in paragraph
(g)(3)(v) of this section) as published annually by the Department of
Health and Human Services pursuant to 42 U.S.C. 9902(2). If a borrower
is not a resident of a State identified in the poverty guidelines, the
poverty guideline to be used for the borrower is the poverty guideline
(for the relevant family size) used for the 48 contiguous States; or
(iv) Is serving as a volunteer in the Peace Corps.
(3) The following rules apply to a deferment granted under paragraph
(g)(2)(iii) of this section:
(i) For an initial period of deferment, the Secretary requires the
borrower to submit evidence showing the amount of the borrower's monthly
income.
(ii) To qualify for a subsequent period of deferment that begins
less than one year after the end of a period of
[[Page 222]]
deferment under paragraph (g)(2)(iii) of this section, the Secretary
requires the borrower to submit evidence showing the amount of the
borrower's monthly income or a copy of the borrower's most recently
filed Federal income tax return.
(iii) A borrower is considered to be working full-time if the
borrower is expected to be employed for at least three consecutive
months at 30 hours per week.
(iv) A borrower's monthly income is the gross amount of income
received by the borrower from employment and from other sources, or one-
twelfth of the borrower's adjusted gross income, as recorded on the
borrower's most recently filed Federal income tax return.
(v) Family size means the number that is determined by counting the
borrower, the borrower's spouse, and the borrower's children, including
unborn children who will be born during the period covered by the
deferment, if the children receive more than half their support from the
borrower. A borrower's family size includes other individuals if, at the
time the borrower requests the economic hardship deferment, the other
individuals--
(A) Live with the borrower; and
(B) Receive more than half their support from the borrower and will
continue to receive this support from the borrower for the year the
borrower certifies family size. Support includes money, gifts, loans,
housing, food, clothes, car, medical and dental care, and payment of
college costs.
(h) Military service deferment. (1) A Direct Loan borrower is
eligible for a deferment during any period in which the borrower is--
(i) Serving on active duty during a war or other military operation
or national emergency, as defined in paragraph (h)(5) of this section;
or
(ii) Performing qualifying National Guard duty during a war or other
military operation or national emergency, as defined in paragraph (h)(5)
of this section.
(2) For a borrower whose active duty service includes October 1,
2007, or begins on or after that date, the deferment period ends 180
days after the demobilization date for each period of the service
described in paragraphs (h)(1)(i) and (h)(1)(ii) of this section.
(3) Without supporting documentation, the military service deferment
will be granted to an otherwise eligible borrower for a period not to
exceed the initial 12 months from the date the qualifying eligible
service began based on a request from the borrower or the borrower's
representative.
(4) The provisions of paragraph (h) of this section do not authorize
the refunding of any payments made by or on behalf of a borrower during
a period for which the borrower qualified for a military service
deferment.
(5) As used in paragraph (h) of this section--
(i) Serving on active duty during a war or other military operation
or national emergency means service by an individual who is--
(A) A Reserve of an Armed Force ordered to active duty under 10
U.S.C. 12301(a), 12301(g), 12302, 12304, or 12306;
(B) A retired member of an Armed Force ordered to active duty under
10 U.S.C. 688 for service in connection with a war or other military
operation or national emergency, regardless of the location at which
such active duty service is performed; or
(C) Any other member of an Armed Force on active duty in connection
with such emergency or subsequent actions or conditions who has been
assigned to a duty station at a location other than the location at
which the member is normally assigned;
(ii) Qualifying National Guard duty during a war or other operation
or national emergency means service as a member of the National Guard on
full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5) under a
call to active service authorized by the President or the Secretary of
Defense for a period of more than 30 consecutive days under 32 U.S.C.
502(f) in connection with a war, other military operation, or national
emergency declared by the President and supported by Federal funds;
(iii) Active duty means active duty as defined in 10 U.S.C.
101(d)(1) except that it does not include active duty for training or
attendance at a service school;
[[Page 223]]
(iv) Military operation means a contingency operation as defined in
10 U.S.C. 101(a)(13); and
(v) National emergency means the national emergency by reason of
certain terrorist attacks declared by the President on September 14,
2001, or subsequent national emergencies declared by the President by
reason of terrorist attacks.
(i) Post-active duty student deferment. (1) A Direct Loan borrower
is eligible for a deferment for 13 months following the conclusion of
the borrower's active duty military service and any applicable grace
period if--
(i) The borrower is a member of the National Guard or other reserve
component of the Armed Forces of the United States or a member of such
forces in retired status; and
(ii) The borrower was enrolled on at least a half-time basis in a
program of instruction at an eligible institution at the time, or within
six months prior to the time, the borrower was called to active duty.
(2) As used in paragraph (i)(1) of this section, ``active duty''
means active duty as defined in 10 U.S.C. 101(d)(1) for at least a 30-
day period, except that--
(i) Active duty includes active State duty for members of the
National Guard under which a Governor activates National Guard personnel
based on State statute or policy and the activities of the National
Guard are paid for with State funds;
(ii) Active duty includes full-time National Guard duty under which
a Governor is authorized, with the approval of the President or the U.S.
Secretary of Defense, to order a member to State active duty and the
activities of the National Guard are paid for with Federal funds;
(iii) Active duty does not include active duty for training or
attendance at a service school; and
(iv) Active duty does not include employment in a full-time,
permanent position in the National Guard unless the borrower employed in
such a position is reassigned to active duty under paragraph (i)(2)(i)
of this section or full-time National Guard duty under paragraph
(i)(2)(ii) of this section.
(3) If the borrower returns to enrolled student status on at least a
half-time basis during the grace period or the 13-month deferment
period, the deferment expires at the time the borrower returns to
enrolled student status on at least a half-time basis.
(4) If a borrower qualifies for both a military service deferment
and a post-active duty student deferment, the 180-day post-
demobilization military service deferment period and the 13-month post-
active duty student deferment period apply concurrently.
(j) Additional deferments for Direct Loan borrowers with FFEL
Program loans made before July 1, 1993. If, at the time of application
for a borrower's first Direct Loan, a borrower has an outstanding
balance of principal or interest owing on any FFEL Program loan that was
made, insured, or guaranteed prior to July 1, 1993, the borrower is
eligible for a deferment during--
(1) The periods described in paragraphs (b) through (i) of this
section; and
(2) The periods described in 34 CFR 682.210(b), including those
periods that apply to a ``new borrower'' as that term is defined in 34
CFR 682.210(b)(7).
(Approved by the Office of Management and Budget under control number
1845-0021)
(Authority: 20 U.S.C. 1087a et seq.)
[78 FR 65829, Nov. 1, 2013]
Sec. 685.205 Forbearance.
(a) General. ``Forbearance'' means permitting the temporary
cessation of payments, allowing an extension of time for making
payments, or temporarily accepting smaller payments than previously
scheduled. The borrower has the option to choose the form of
forbearance. Except as provided in paragraph (b)(9) of this section, if
payments of interest are forborne, they are capitalized. The Secretary
grants forbearance if the borrower or endorser intends to repay the loan
but requests forbearance and provides sufficient documentation to
support this request, and--
(1) The Secretary determines that, due to poor health or other
acceptable reasons, the borrower or endorser is currently unable to make
scheduled payments;
(2) The borrower's payments of principal are deferred under
Sec. 685.204 and
[[Page 224]]
the Secretary does not subsidize the interest benefits on behalf of the
borrower;
(3) The borrower is in a medical or dental internship or residency
that must be successfully completed before the borrower may begin
professional practice or service, or the borrower is serving in a
medical or dental internship or residency program leading to a degree or
certificate awarded by an institution of higher education, a hospital,
or a health care facility that offers postgraduate training;
(4) The borrower is serving in a national service position for which
the borrower is receiving a national service education award under title
I of the National and Community Service Act of 1990;
(5)(i) The borrower is performing the type of service that would
qualify the borrower for loan forgiveness under the requirements of the
teacher loan forgiveness program in Sec. 685.217.
(ii) Before a forbearance is granted under Sec. 685.205(a)(5)(i),
the borrower must--
(A) Submit documentation for the period of the annual forbearance
request showing the beginning and ending dates that the borrower is
expected to perform, for that year, the type of service described in
Sec. 685.217(c); and
(B) Certify the borrower's intent to satisfy the requirements of
Sec. 685.217(c).
(iii) The Secretary grants forbearance under paragraph (a)(5) of
this section only if the Secretary believes, at the time of the
borrower's annual request, that the expected forgiveness amount under
Sec. 685.217(d) will satisfy the anticipated remaining outstanding
balance on the borrower's loan at the time of the expected forgiveness;
(6) For not more than three years during which the borrower or
endorser--
(i) Is currently obligated to make payments on loans under title IV
of the Act; and
(ii) The sum of these payments each month (or a proportional share
if the payments are due less frequently than monthly) is equal to or
greater than 20 percent of the borrower's or endorser's total monthly
gross income.
(7) The borrower is a member of the National Guard who qualifies for
a post-active duty student deferment, but does not qualify for a
military service or other deferment, and is engaged in active State duty
for a period of more than 30 consecutive days, beginning--
(i) On the day after the grace period expires for a Direct
Subsidized Loan or Direct Unsubsidized Loan that has not entered
repayment; or
(ii) On the day after the borrower ceases enrollment on at least a
half-time basis, for a Direct Loan in repayment.
(8)(i) The Secretary may grant a forbearance to permit a borrower or
endorser to resume honoring the agreement to repay the debt after
default. The terms of the forbearance agreement in this situation must
include a new agreement to repay the debt signed by the borrower or
endorser or a written or oral affirmation of the borrower's or
endorser's obligation to repay the debt.
(ii) If the forbearance is based on the borrower's or endorser's
oral affirmation of the obligation to repay the debt, the forbearance
period is limited to 120 days, such a forbearance is not granted
consecutively, and the Secretary will--
(A) Orally review with the borrower the terms and conditions of the
forbearance, including the consequences of interest capitalization, and
all other repayment options available to the borrower;
(B) Send a notice to the borrower or endorser that confirms the
terms of the forbearance and the borrower's or endorser's affirmation of
the obligation to repay the debt and that includes information on all
other repayment options available to the borrower; and
(C) Retain a record of the terms of the forbearance and affirmation
in the borrower's or endorser's file.
(iii) For purposes of this section, an ``affirmation'' means an
acknowledgement of the loan by the borrower or endorser in a legally
binding manner. The form of the affirmation may include, but is not
limited to, the borrower's or endorser's--
(A) New signed repayment agreement or schedule, or another form of
signed agreement to repay the debt;
[[Page 225]]
(B) Oral acknowledgement and agreement to repay the debt documented
by the Secretary in the borrower's or endorser's file and confirmed by
the Secretary in a notice to the borrower; or
(C) A payment made on the loan by the borrower or endorser.
(9)(i) The borrower is performing the type of service that would
qualify the borrower for a partial repayment of his or her loan under
the Student Loan Repayment Programs administered by the Department of
Defense under 10 U.S.C. 2171, 2173, 2174, or any other student loan
repayment programs administered by the Department of Defense.
(ii) To receive a forbearance under this paragraph, the borrower
must submit documentation showing the time period during which the
Department of Defense considers the borrower to be eligible for a
partial repayment of his or her loan under a student loan repayment
program.
(b) Administrative forbearance. In certain circumstances, the
Secretary grants forbearance without requiring documentation from the
borrower. These circumstances include but are not limited to--
(1) A properly granted period of deferment for which the Secretary
learns the borrower did not qualify;
(2) The period for which payments are overdue at the beginning of an
authorized deferment or forbearance period;
(3) The period beginning when the borrower entered repayment without
the Secretary's knowledge until the first payment due date was
established;
(4) The period prior to a borrower's filing of a bankruptcy
petition;
(5) A period after the Secretary receives reliable information
indicating that the borrower (or the student in the case of a Direct
PLUS Loan obtained by a parent borrower) has died, or the borrower has
become totally and permanently disabled, until the Secretary receives
documentation of death or total and permanent disability;
(6) Periods necessary for the Secretary to determine the borrower's
eligibility for discharge--
(i) Under Sec. 685.214;
(ii) Under Sec. 685.215;
(iii) Under Sec. 685.216;
(iv) Under Sec. 685.217; or
(v) Due to the borrower's or endorser's (if applicable) bankruptcy;
(7) A period of up to three years in cases where the effect of a
variable interest rate on a fixed-amount or graduated repayment schedule
causes the extension of the maximum repayment term;
(8) A period during which the Secretary has authorized forbearance
due to a national military mobilization or other local or national
emergency;
(9) A period of up to 60 days necessary for the Secretary to collect
and process documentation supporting the borrower's request for a
deferment, forbearance, change in repayment plan, or consolidation loan.
Interest that accrues during this period is not capitalized; or
(10) For Direct PLUS Loans first disbursed before July 1, 2008, to
align repayment with a borrower's Direct PLUS Loans that were first
disbursed on or after July 1, 2008, or with Direct Subsidized Loans or
Direct Unsubsidized Loans that have a grace period in accordance with
Sec. 685.207(b) or (c). The Secretary notifies the borrower that the
borrower has the option to cancel the forbearance and continue paying on
the loan.
(c) Period of forbearance. (1) The Secretary grants forbearance for
a period of up to one year.
(2) The forbearance is renewable, upon request of the borrower, for
the duration of the period in which the borrower meets the condition
required for the forbearance.
(Approved by the Office of Management and Budget under control number
1845-0021)
(Authority: 20 U.S.C. 1087a et seq.)
[59 FR 61690, Dec. 1, 1994, as amended at 61 FR 29900, June 12, 1996; 64
FR 58968, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29,
2001; 68 FR 75430, Dec. 31, 2003; 71 FR 45712, Aug. 9, 2006; 73 FR
63255, Oct. 23, 2008; 74 FR 56003, Oct. 29, 2010; 78 FR 65832, Nov. 1,
2013]
Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 685.205 was
amended by revising paragraph (b)(6), eff. July 1, 2017. At 82 FR 27621,
June 16, 2017, the effective date was delayed indefinitely. For the
convenience of the user, the revised text is set forth as follows:
[[Page 226]]
Sec. 685.205 Forbearance.
* * * * *
(b) * * *
(6) Periods necessary for the Secretary to determine the borrower's
eligibility for discharge--
(i) Under Sec. 685.206(c);
(ii) Under Sec. 685.214;
(iii) Under Sec. 685.215;
(iv) Under Sec. 685.216;
(v) Under Sec. 685.217;
(vi) Under Sec. 685.222; or
(vii) Due to the borrower's or endorser's (if applicable)
bankruptcy;
* * * * *
Sec. 685.206 Borrower responsibilities and defenses.
(a) The borrower must give the school the following information as
part of the origination process for a Direct Subsidized, Direct
Unsubsidized, or Direct PLUS Loan:
(1) A statement, as described in 34 CFR part 668, that the loan will
be used for the cost of the student's attendance.
(2) Information demonstrating that the borrower is eligible for the
loan.
(3) Information concerning the outstanding FFEL Program and Direct
Loan Program loans of the borrower and, for a parent borrower, of the
student, including any Federal Consolidation Loan or Direct
Consolidation Loan.
(4) A statement authorizing the school to release to the Secretary
information relevant to the student's eligibility to borrow or to have a
parent borrow on the student's behalf (e.g., the student's enrollment
status, financial assistance, and employment records).
(b)(1) The borrower must promptly notify the Secretary of any change
of name, address, student status to less than half-time, employer, or
employer's address; and
(2) The borrower must promptly notify the school of any change in
address during enrollment.
(c) Borrower defenses. (1) In any proceeding to collect on a Direct
Loan, the borrower may assert as a defense against repayment, any act or
omission of the school attended by the student that would give rise to a
cause of action against the school under applicable State law. These
proceedings include, but are not limited to, the following:
(i) Tax refund offset proceedings under 34 CFR 30.33.
(ii) Wage garnishment proceedings under section 488A of the Act.
(iii) Salary offset proceedings for Federal employees under 34 CFR
part 31.
(iv) Consumer reporting agency reporting proceedings under 31 U.S.C.
3711(f).
(2) If the borrower's defense against repayment is successful, the
Secretary notifies the borrower that the borrower is relieved of the
obligation to repay all or part of the loan and associated costs and
fees that the borrower would otherwise be obligated to pay. The
Secretary affords the borrower such further relief as the Secretary
determines is appropriate under the circumstances. Further relief may
include, but is not limited to, the following:
(i) Reimbursing the borrower for amounts paid toward the loan
voluntarily or through enforced collection.
(ii) Determining that the borrower is not in default on the loan and
is eligible to receive assistance under title IV of the Act.
(iii) Updating reports to consumer reporting agencies to which the
Secretary previously made adverse credit reports with regard to the
borrower's Direct Loan.
(3) The Secretary may initiate an appropriate proceeding to require
the school whose act or omission resulted in the borrower's successful
defense against repayment of a Direct Loan to pay to the Secretary the
amount of the loan to which the defense applies. However, the Secretary
does not initiate such a proceeding after the period for the retention
of records described in Sec. 685.309(c) unless the school received
actual notice of the claim during that period.
(Approved by the Office of Management and Budget under control number
1845-0021)
(Authority: 20 U.S.C. 1087a et seq.)
[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 64
FR 58972, Nov. 1, 1999; 78 FR 65832, Nov. 1, 2013]
[[Page 227]]
Effective Date Note: At 81 FR 76080, Nov. 1, 2016, Sec. 685.206 was
amended by revising paragraph (c), eff. July 1, 2017. At 82 FR 27621,
June 16, 2017, the effective date was delayed indefinitely. For the
convenience of the user, the revised text is set forth as follows:
Sec. 685.206 Borrower responsibilities and defenses.
* * * * *
(c) Borrower defenses. (1) For loans first disbursed prior to July
1, 2017, the borrower may assert a borrower defense under this
paragraph. A ``borrower defense'' refers to any act or omission of the
school attended by the student that relates to the making of the loan
for enrollment at the school or the provision of educational services
for which the loan was provided that would give rise to a cause of
action against the school under applicable State law, and includes one
or both of the following:
(i) A defense to repayment of amounts owed to the Secretary on a
Direct Loan, in whole or in part.
(ii) A claim to recover amounts previously collected by the
Secretary on the Direct Loan, in whole or in part.
(2) The order of objections for defaulted Direct Loans are as
described in Sec. 685.222(a)(6). A borrower defense claim under this
section must be asserted, and will be resolved, under the procedures in
Sec. 685.222(e) to (k).
(3) For an approved borrower defense under this section, except as
provided in paragraph (c)(4) of this section, the Secretary may initiate
an appropriate proceeding to collect from the school whose act or
omission resulted in the borrower defense the amount of relief arising
from the borrower defense, within the later of--
(i) Three years from the end of the last award year in which the
student attended the institution; or
(ii) The limitation period that State law would apply to an action
by the borrower to recover on the cause of action on which the borrower
defense is based.
(4) The Secretary may initiate a proceeding to collect at any time
if the institution received notice of the claim before the end of the
later of the periods described in paragraph (c)(3) of this section. For
purposes of this paragraph, notice includes receipt of--
(i) Actual notice from the borrower, from a representative of the
borrower, or from the Department;
(ii) A class action complaint asserting relief for a class that may
include the borrower; and
(iii) Written notice, including a civil investigative demand or
other written demand for information, from a Federal or State agency
that has power to initiate an investigation into conduct of the school
relating to specific programs, periods, or practices that may have
affected the borrower.
* * * * *
Sec. 685.207 Obligation to repay.
(a) Obligation of repayment in general. (1) A borrower is obligated
to repay the full amount of a Direct Loan, including the principal
balance, fees, any collection costs charged under Sec. 685.202(e), and
any interest not subsidized by the Secretary, unless the borrower is
relieved of the obligation to repay as provided in this part.
(2) The borrower's repayment of a Direct Loan may also be subject to
the deferment provisions in Sec. 685.204, the forbearance provisions in
Sec. 685.205, the discharge provisions in Sec. 685.212, and the loan
forgiveness provisions in Secs. 685.217 and 685.219.
(3) A borrower's first payment on a Direct Loan is due within 60
days of the beginning date of the repayment period as determined in
accordance with paragraph (b), (c), (d), or (e) of this section.
(b) Direct Subsidized Loan repayment. (1) During the period in which
a borrower is enrolled at an eligible school on at least a half-time
basis, the borrower is in an ``in-school'' period and is not required to
make payments on a Direct Subsidized Loan unless--
(i) The loan entered repayment before the in-school period began;
and
(ii) The borrower has not been granted a deferment under
Sec. 685.204(b).
(2)(i) When a borrower ceases to be enrolled at an eligible school
on at least a half-time basis, a six-month grace period begins, unless
the grace period has been previously exhausted.
(ii)(A) Any borrower who is a member of a reserve component of the
Armed Forces named in section 10101 of title 10, United States Code and
is called or ordered to active duty for a period of more than 30 days is
entitled to have the active duty period excluded from the six-month
grace period. The excluded period includes the time necessary for the
borrower to resume enrollment at the next available regular enrollment
period. Any single excluded period may not exceed 3 years.
[[Page 228]]
(B) Any borrower who is in a grace period when called or ordered to
active duty as specified in paragraph (b)(2)(ii)(A) of this section is
entitled to a full six-month grace period upon completion of the
excluded period.
(iii) During a grace period, the borrower is not required to make
any principal payments on a Direct Subsidized Loan.
(3)(i) A borrower is not obligated to pay interest on a Direct
Subsidized Loan during periods when the borrower is enrolled at an
eligible school on at least a half-time basis unless the borrower is
required to make payments on the loan during those periods under
paragraph (b)(1) of this section.
(ii) Except as provided in paragraph (b)(3)(iii) of this section, a
borrower is not obligated to pay interest on a Direct Subsidized Loan
during grace periods.
(iii) In the case of a Direct Subsidized Loan for which the first
disbursement is made on or after July 1, 2012 and before July 1, 2014, a
borrower is responsible for the interest that accrues during the grace
period.
(4) The repayment period for a Direct Subsidized Loan begins the day
after the grace period ends. A borrower is obligated to repay the loan
under paragraph (a) of this section during the repayment period.
(c) Direct Unsubsidized Loan repayment. (1) During the period in
which a borrower is enrolled at an eligible school on at least a half-
time basis, the borrower is in an ``in-school'' period and is not
required to make payments of principal on a Direct Unsubsidized Loan
unless--
(i) The loan entered repayment before the in-school period began;
and
(ii) The borrower has not been granted a deferment under
Sec. 685.204.
(2)(i) When a borrower ceases to be enrolled at an eligible school
on at least a half-time basis, a six-month grace period begins, unless
the grace period has been previously exhausted.
(ii)(A) Any borrower who is a member of a reserve component of the
Armed Forces named in section 10101 of title 10, United States Code and
is called or ordered to active duty for a period of more than 30 days is
entitled to have the active duty period excluded from the six-month
grace period. The excluded period includes the time necessary for the
borrower to resume enrollment at the next available regular enrollment
period. Any single excluded period may not exceed 3 years.
(B) Any borrower who is in a grace period when called or ordered to
active duty as specified in paragraph (c)(2)(ii)(A) of this section is
entitled to a full six-month grace period upon completion of the
excluded period.
(iii) During a grace period, the borrower is not required to make
any principal payments on a Direct Unsubsidized Loan.
(3) A borrower is responsible for the interest that accrues on a
Direct Unsubsidized Loan during in-school and grace periods. Interest
begins to accrue on the day the first installment is disbursed. Interest
that accrues may be capitalized or paid by the borrower.
(4) The repayment period for a Direct Unsubsidized Loan begins the
day after the grace period ends. A borrower is obligated to repay the
loan under paragraph (a) of this section during the repayment period.
(d) Direct PLUS Loan repayment. The repayment period for a Direct
PLUS Loan begins on the day the loan is fully disbursed. Interest begins
to accrue on the day the first installment is disbursed. A borrower is
obligated to repay the loan under paragraph (a) of this section during
the repayment period.
(e) Direct Consolidation Loan repayment. (1) Except as provided in
paragraphs (e)(2) and (e)(3) of this section, the repayment period for a
Direct Consolidation Loan begins and interest begins to accrue on the
day the loan is made. The borrower is obligated to repay the loan under
paragraph (a) of this section during the repayment period.
(2) In the case of a borrower whose consolidation application was
received before July 1, 2006, a borrower who obtains a Direct Subsidized
Consolidation Loan during an in-school period will be subject to the
repayment provisions in paragraph (b) of this section.
(3) In the case of a borrower whose consolidation application was
received
[[Page 229]]
before July 1, 2006, a borrower who obtains a Direct Unsubsidized
Consolidation Loan during an in-school period will be subject to the
repayment provisions in paragraph (c) of this section.
(f) Determining the date on which the grace period begins for a
borrower in a correspondence program. For a borrower of a Direct
Subsidized or Direct Unsubsidized Loan who is a correspondence student,
the grace period specified in paragraphs (b)(2) and (c)(2) of this
section begins on the earliest of--
(1) The day after the borrower completes the program;
(2) The day after withdrawal as determined pursuant to 34 CFR
668.22; or
(3) 60 days following the last day for completing the program as
established by the school.
(Authority: 20 U.S.C. 1087a et seq.)
[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58968, Nov. 1, 1999; 68
FR 75430, Dec. 31, 2003; 71 FR 45712, Aug. 9, 2006; 78 FR 65832, Nov. 1,
2013]
Sec. 685.208 Repayment plans.
(a) General--(1) Borrowers who entered repayment before July 1,
2006. (i) A Direct Subsidized Loan, a Direct Unsubsidized Loan, a Direct
Subsidized Consolidation Loan, or a Direct Unsubsidized Consolidation
Loan may be repaid under--
(A) The standard repayment plan in accordance with paragraph (b) of
this section;
(B) The extended repayment plan in accordance with paragraph (d) of
this section;
(C) The graduated repayment plan in accordance with paragraph (f) of
this section;
(D) The income-contingent repayment plans in accordance with
paragraph (k)(2) or (3) of this section; or
(E) The income-based repayment plan in accordance with paragraph (m)
of this section.
(ii) A Direct PLUS Loan or a Direct PLUS Consolidation Loan may be
repaid under--
(A) The standard repayment plan in accordance with paragraph (b) of
this section;
(B) The extended repayment plan in accordance with paragraph (d) of
this section; or
(C) The graduated repayment plan in accordance with paragraph (f) of
this section.
(2) Borrowers entering repayment on or after July 1, 2006. (i) A
Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS
Loan that was made to a graduate or professional student borrower may be
repaid under--
(A) The standard repayment plan in accordance with paragraph (b) of
this section;
(B) The extended repayment plan in accordance with paragraph (e) of
this section;
(C) The graduated repayment plan in accordance with paragraph (g) of
this section;
(D) The income-contingent repayment plans in accordance with
paragraph (k) of this section; or
(E) The income-based repayment plan in accordance with paragraph (m)
of this section.
(ii) A Direct PLUS Loan that was made to a parent borrower may be
repaid under--
(A) The standard repayment plan in accordance with paragraph (b) of
this section;
(B) The extended repayment plan in accordance with paragraph (e) of
this section; or
(C) The graduated repayment plan in accordance with paragraph (g) of
this section.
(iii) A Direct Consolidation Loan that did not repay a parent Direct
PLUS Loan or a parent Federal PLUS Loan may be repaid under--
(A) The standard repayment plan in accordance with paragraph (c) of
this section;
(B) The extended repayment plan in accordance with paragraph (e) of
this section;
(C) The graduated repayment plan in accordance with paragraph (h) of
this section;
(D) The income-contingent repayment plans in accordance with
paragraph (k) of this section; or
(E) The income-based repayment plan in accordance with paragraph (m)
of this section.
(iv) A Direct Consolidation Loan that repaid a parent Direct PLUS
Loan or a parent Federal PLUS Loan may be repaid under--
[[Page 230]]
(A) The standard repayment plan in accordance with paragraph (c) of
this section;
(B) The extended repayment plan in accordance with paragraph (e) of
this section;
(C) The graduated repayment plan in accordance with paragraph (h) of
this section; or
(D) The income-contingent repayment plan in accordance with
paragraph (k)(2) of this section.
(v) No scheduled payment may be less than the amount of interest
accrued on the loan between monthly payments, except under the income-
contingent repayment plans, the income-based repayment plan, or an
alternative repayment plan.
(3) The Secretary may provide an alternative repayment plan in
accordance with paragraph (l) of this section.
(4) All Direct Loans obtained by one borrower must be repaid
together under the same repayment plan, except that--
(i) A borrower of a Direct PLUS Loan or a Direct Consolidation Loan
that is not eligible for repayment under an income-contingent repayment
plan or the income-based repayment plan may repay the Direct PLUS Loan
or Direct Consolidation Loan separately from other Direct Loans obtained
by the borrower; and
(ii) A borrower of a Direct PLUS Consolidation Loan that entered
repayment before July 1, 2006, may repay the Direct PLUS Consolidation
Loan separately from other Direct Loans obtained by that borrower.
(5) Except as provided in Sec. 685.209 and Sec. 685.221 for the
income-contingent repayment plans and the income-based repayment plan,
the repayment period for any of the repayment plans described in this
section does not include periods of authorized deferment or forbearance.
(b) Standard repayment plan for all Direct Subsidized Loan, Direct
Unsubsidized Loan, and Direct PLUS Loan borrowers, regardless of when
they entered repayment, and for Direct Consolidation Loan borrowers who
entered repayment before July 1, 2006. (1) Under this repayment plan, a
borrower must repay a loan in full within ten years from the date the
loan entered repayment by making fixed monthly payments.
(2) A borrower's payments under this repayment plan are at least $50
per month, except that a borrower's final payment may be less than $50.
(3) The number of payments or the fixed monthly repayment amount may
be adjusted to reflect changes in the variable interest rate identified
in Sec. 685.202(a).
(c) Standard repayment plan for Direct Consolidation Loan borrowers
entering repayment on or after July 1, 2006. (1) Under this repayment
plan, a borrower must repay a loan in full by making fixed monthly
payments over a repayment period that varies with the total amount of
the borrower's student loans, as described in paragraph (j) of this
section.
(2) A borrower's payments under this repayment plan are at least $50
per month, except that a borrower's final payment may be less than $50.
(d) Extended repayment plan for all Direct Loan borrowers who
entered repayment before July 1, 2006. (1) Under this repayment plan, a
borrower must repay a loan in full by making fixed monthly payments
within an extended period of time that varies with the total amount of
the borrower's loans, as described in paragraph (i) of this section.
(2) A borrower makes fixed monthly payments of at least $50, except
that a borrower's final payment may be less than $50.
(3) The number of payments or the fixed monthly repayment amount may
be adjusted to reflect changes in the variable interest rate identified
in Sec. 685.202(a).
(e) Extended repayment plan for all Direct Loan borrowers entering
repayment on or after July 1, 2006. (1) Under this repayment plan, a new
borrower with more than $30,000 in outstanding Direct Loans accumulated
on or after October 7, 1998 must repay either a fixed annual or
graduated repayment amount over a period not to exceed 25 years from the
date the loan entered repayment. For this repayment plan, a new borrower
is defined as an individual who has no outstanding principal or interest
balance on a Direct Loan as of October 7,
[[Page 231]]
1998, or on the date the borrower obtains a Direct Loan on or after
October 7, 1998.
(2) A borrower's payments under this plan are at least $50 per
month, and will be more if necessary to repay the loan within the
required time period.
(3) The number of payments or the monthly repayment amount may be
adjusted to reflect changes in the variable interest rate identified in
Sec. 685.202(a).
(f) Graduated repayment plan for all Direct Loan borrowers who
entered repayment before July 1, 2006. (1) Under this repayment plan, a
borrower must repay a loan in full by making payments at two or more
levels within a period of time that varies with the total amount of the
borrower's loans, as described in paragraph (i) of this section.
(2) The number of payments or the monthly repayment amount may be
adjusted to reflect changes in the variable interest rate identified in
Sec. 685.202(a).
(3) No scheduled payment under this repayment plan may be less than
the amount of interest accrued on the loan between monthly payments,
less than 50 percent of the payment amount that would be required under
the standard repayment plan described in paragraph (b) of this section,
or more than 150 percent of the payment amount that would be required
under the standard repayment plan described in paragraph (b) of this
section.
(g) Graduated repayment plan for Direct Subsidized Loan, Direct
Unsubsidized Loan, and Direct PLUS Loan borrowers entering repayment on
or after July 1, 2006. (1) Under this repayment plan, a borrower must
repay a loan in full by making payments at two or more levels over a
period of time not to exceed ten years from the date the loan entered
repayment.
(2) The number of payments or the monthly repayment amount may be
adjusted to reflect changes in the variable interest rate identified in
Sec. 685.202(a).
(3) A borrower's payments under this repayment plan may be less than
$50 per month. No single payment under this plan will be more than three
times greater than any other payment.
(h) Graduated repayment plan for Direct Consolidation Loan borrowers
entering repayment on or after July 1, 2006. (1) Under this repayment
plan, a borrower must repay a loan in full by making monthly payments
that gradually increase in stages over the course of a repayment period
that varies with the total amount of the borrower's student loans, as
described in paragraph (j) of this section.
(2) A borrower's payments under this repayment plan may be less than
$50 per month. No single payment under this plan will be more than three
times greater than any other payment.
(i) Repayment period for the extended and graduated plans described
in paragraphs (d) and (f) of this section, respectively. Under these
repayment plans, if the total amount of the borrower's Direct Loans is--
(1) Less than $10,000, the borrower must repay the loans within 12
years of entering repayment;
(2) Greater than or equal to $10,000 but less than $20,000, the
borrower must repay the loans within 15 years of entering repayment;
(3) Greater than or equal to $20,000 but less than $40,000, the
borrower must repay the loans within 20 years of entering repayment;
(4) Greater than or equal to $40,000 but less than $60,000, the
borrower must repay the loans within 25 years of entering repayment; and
(5) Greater than or equal to $60,000, the borrower must repay the
loans within 30 years of entering repayment.
(j) Repayment period for the standard and graduated repayment plans
described in paragraphs (c) and (h) of this section, respectively. Under
these repayment plans, if the total amount of the Direct Consolidation
Loan and the borrower's other student loans, as defined in
Sec. 685.220(i), is--
(1) Less than $7,500, the borrower must repay the Consolidation Loan
within 10 years of entering repayment;
(2) Equal to or greater than $7,500 but less than $10,000, the
borrower must repay the Consolidation Loan within 12 years of entering
repayment;
(3) Equal to or greater than $10,000 but less than $20,000, the
borrower must repay the Consolidation Loan within 15 years of entering
repayment;
[[Page 232]]
(4) Equal to or greater than $20,000 but less than $40,000, the
borrower must repay the Consolidation Loan within 20 years of entering
repayment;
(5) Equal to or greater than $40,000 but less than $60,000, the
borrower must repay the Consolidation Loan within 25 years of entering
repayment; and
(6) Equal to or greater than $60,000, the borrower must repay the
Consolidation Loan within 30 years of entering repayment.
(k) Income-contingent repayment plans. (1) Under the income-
contingent repayment plan described in Sec. 685.209(a), the required
monthly payment for a borrower who has a partial financial hardship is
limited to no more than 10 percent of the amount by which the borrower's
AGI exceeds 150 percent of the poverty guideline applicable to the
borrower's family size, divided by 12. The Secretary determines annually
whether the borrower continues to qualify for this reduced monthly
payment based on the amount of the borrower's eligible loans, AGI, and
poverty guideline.
(2) Under the income-contingent repayment plan described in
Sec. 685.209(b), a borrower's monthly repayment amount is generally
based on the total amount of the borrower's Direct Loans, family size,
and AGI reported by the borrower for the most recent year for which the
Secretary has obtained income information.
(3) Under the income-contingent repayment plan described in
Sec. 685.209(c), a borrower's required monthly payment is limited to no
more than 10 percent of the amount by which the borrower's AGI exceeds
150 percent of the poverty guideline applicable to the borrower's family
size, divided by 12, unless the borrower's monthly payment amount is
adjusted in accordance with Sec. 685.209(c)(4)(vi)(E).
(4) For the income-contingent repayment plan described in
Sec. 685.209(b), the regulations in effect at the time a borrower enters
repayment and selects the income-contingent repayment plan or changes
into the income-contingent repayment plan from another plan govern the
method for determining the borrower's monthly repayment amount for all
of the borrower's Direct Loans, unless--
(i) The Secretary amends the regulations relating to a borrower's
monthly repayment amount under the income-contingent repayment plan; and
(ii) The borrower submits a written request that the amended
regulations apply to the repayment of the borrower's Direct Loans.
(5) Provisions governing the income-contingent repayment plans are
in Sec. 685.209.
(l) Alternative repayment. (1) The Secretary may provide an
alternative repayment plan for a borrower who demonstrates to the
Secretary's satisfaction that the terms and conditions of the repayment
plans specified in paragraphs (b) through (h) of this section are not
adequate to accommodate the borrower's exceptional circumstances.
(2) The Secretary may require a borrower to provide evidence of the
borrower's exceptional circumstances before permitting the borrower to
repay a loan under an alternative repayment plan.
(3) If the Secretary agrees to permit a borrower to repay a loan
under an alternative repayment plan, the Secretary notifies the borrower
in writing of the terms of the plan. After the borrower receives
notification of the terms of the plan, the borrower may accept the plan
or choose another repayment plan.
(4) A borrower must repay a loan under an alternative repayment plan
within 30 years of the date the loan entered repayment, not including
periods of deferment and forbearance.
(5) If the amount of a borrower's monthly payment under an
alternative repayment plan is less than the accrued interest on the
loan, the unpaid interest is capitalized until the outstanding principal
amount is 10 percent greater than the original principal amount. After
the outstanding principal amount is 10 percent greater than the original
principal amount, interest continues to accrue but is not capitalized.
For purposes of this paragraph, the original principal amount is the
amount owed by the borrower when the borrower enters repayment.
[[Page 233]]
(m) Income-based repayment plan. (1) Under this repayment plan, the
required monthly payment for a borrower who has a partial financial
hardship is limited to no more than 15 percent or, for a new borrower as
of July 1, 2014, as defined in Sec. 685.221(a)(4), 10 percent of the
amount by which the borrower's AGI exceeds 150 percent of the poverty
guideline applicable to the borrower's family size, divided by 12. The
Secretary determines annually whether the borrower continues to qualify
for this reduced monthly payment based on the amount of the borrower's
eligible loans, AGI, and poverty guideline.
(2) The specific provisions governing the income-based repayment
plan are in Sec. 685.221.
(Authority: 20 U.S.C. 1087a et seq.)
[71 FR 45712, Aug. 9, 2006, as amended at 71 FR 64400, Nov. 1, 2006; 73
FR 63255, Oct. 23, 2008; 77 FR 66135, Nov. 1, 2012; 78 FR 65833, Nov. 1,
2013; 80 FR 67238, Oct. 30, 2015]
Sec. 685.209 Income-contingent repayment plans.
(a) Pay As You Earn repayment plan: The Pay As You Earn repayment
plan is an income-contingent repayment plan for eligible new borrowers.
(1) Definitions. As used in this section, other than as expressly
provided for in paragraph (c) of this section--
(i) Adjusted gross income (AGI) means the borrower's adjusted gross
income as reported to the Internal Revenue Service. For a married
borrower filing jointly, AGI includes both the borrower's and spouse's
income. For a married borrower filing separately, AGI includes only the
borrower's income;
(ii) Eligible loan, for purposes of determining whether a borrower
has a partial financial hardship in accordance with paragraph (a)(1)(v)
of this section or adjusting a borrower's monthly payment amount in
accordance with paragraph (a)(2)(ii) of this section, means any
outstanding loan made to a borrower under the Direct Loan Program or the
FFEL Program except for a defaulted loan, a Direct PLUS Loan or Federal
PLUS Loan made to a parent borrower, or a Direct Consolidation Loan or
Federal Consolidation Loan that repaid a Direct PLUS Loan or Federal
PLUS Loan made to a parent borrower;
(iii) Eligible new borrower means an individual who--
(A) Has no outstanding balance on a Direct Loan Program loan or a
FFEL Program loan as of October 1, 2007, or who has no outstanding
balance on such a loan on the date he or she receives a new loan after
October 1, 2007; and
(B)(1) Receives a disbursement of a Direct Subsidized Loan, Direct
Unsubsidized Loan, or student Direct PLUS Loan on or after October 1,
2011; or
(2) Receives a Direct Consolidation Loan based on an application
received on or after October 1, 2011, except that a borrower is not
considered an eligible new borrower if the Direct Consolidation Loan
repays a loan that would otherwise make the borrower ineligible under
paragraph (a)(1)(iii)(A) of this section;
(iv) Family size means the number that is determined by counting the
borrower, the borrower's spouse, and the borrower's children, including
unborn children who will be born during the year the borrower certifies
family size, if the children receive more than half their support from
the borrower. A borrower's family size includes other individuals if, at
the time the borrower certifies family size, the other individuals--
(A) Live with the borrower; and
(B) Receive more than half their support from the borrower and will
continue to receive this support from the borrower for the year the
borrower certifies family size. Support includes money, gifts, loans,
housing, food, clothes, car, medical and dental care, and payment of
college costs;
(v) Partial financial hardship means a circumstance in which--
(A) For an unmarried borrower or a married borrower who files an
individual Federal tax return, the annual amount due on all of the
borrower's eligible loans, as calculated under a standard repayment plan
based on a 10-year repayment period, using the greater of the amount due
at the time the borrower initially entered repayment or at the time the
borrower elects the Pay As You Earn repayment
[[Page 234]]
plan, exceeds 10 percent of the difference between the borrower's AGI
and 150 percent of the poverty guideline for the borrower's family size;
or
(B) For a married borrower who files a joint Federal tax return with
his or her spouse, the annual amount due on all of the borrower's
eligible loans and, if applicable, the spouse's eligible loans, as
calculated under a standard repayment plan based on a 10-year repayment
period, using the greater of the amount due at the time the loans
initially entered repayment or at the time the borrower or spouse elects
the Pay As You Earn repayment plan, exceeds 10 percent of the difference
between the borrower's and spouse's AGI, and 150 percent of the poverty
guideline for the borrower's family size; and
(vi) Poverty guideline refers to the income categorized by State and
family size in the poverty guidelines published annually by the United
States Department of Health and Human Services pursuant to 42 U.S.C.
9902(2). If a borrower is not a resident of a State identified in the
poverty guidelines, the poverty guideline to be used for the borrower is
the poverty guideline (for the relevant family size) used for the 48
contiguous States.
(2) Terms of the Pay As You Earn repayment plan. (i) A borrower may
select the Pay As You Earn repayment plan only if the borrower has a
partial financial hardship. The borrower's aggregate monthly loan
payments are limited to no more than 10 percent of the amount by which
the borrower's AGI exceeds 150 percent of the poverty guideline
applicable to the borrower's family size, divided by 12.
(ii) The Secretary adjusts the calculated monthly payment if--
(A) Except for borrowers provided for in paragraph (a)(2)(ii)(B) of
this section, the total amount of the borrower's eligible loans are not
Direct Loans, in which case the Secretary determines the borrower's
adjusted monthly payment by multiplying the calculated payment by the
percentage of the total outstanding principal amount of the borrower's
eligible loans that are Direct Loans;
(B) Both the borrower and borrower's spouse have eligible loans and
filed a joint Federal tax return, in which case the Secretary
determines--
(1) Each borrower's percentage of the couple's total eligible loan
debt;
(2) The adjusted monthly payment for each borrower by multiplying
the calculated payment by the percentage determined in paragraph
(a)(2)(ii)(B)(1) of this section; and
(3) If the borrower's loans are held by multiple holders, the
borrower's adjusted monthly Direct Loan payment by multiplying the
payment determined in paragraph (a)(2)(ii)(B)(2) of this section by the
percentage of the total outstanding principal amount of the borrower's
eligible loans that are Direct Loans;
(C) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A),
or (a)(2)(ii)(B) of this section is less than $5.00, in which case the
borrower's monthly payment is $0.00; or
(D) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A),
or (a)(2)(ii)(B) of this section is equal to or greater than $5.00 but
less than $10.00, in which case the borrower's monthly payment is
$10.00.
(iii) If the borrower's monthly payment amount is not sufficient to
pay the accrued interest on the borrower's Direct Subsidized loan or the
subsidized portion of a Direct Consolidation Loan, the Secretary does
not charge the borrower the remaining accrued interest for a period not
to exceed three consecutive years from the established repayment period
start date on that loan under the Pay As You Earn repayment plan. Any
period during which the Secretary has previously not charged the
borrower accrued interest on an eligible loan under the income-based
repayment plan or the Revised Pay As You Earn repayment plan counts
toward the maximum three years of subsidy a borrower is eligible to
receive under the Pay As You Earn repayment plan. On a Direct
Consolidation Loan that repays loans on which the Secretary has not
charged the borrower accrued interest, the three-year period includes
the period for which the Secretary did not charge the borrower accrued
interest on the underlying loans. This three-year period does not
include any period during
[[Page 235]]
which the borrower receives an economic hardship deferment.
(iv)(A) Except as provided in paragraph (a)(2)(iii) of this section,
accrued interest is capitalized--
(1) When a borrower is determined to no longer have a partial
financial hardship; or
(2) At the time a borrower chooses to leave the Pay As You Earn
repayment plan.
(B)(1) The amount of accrued interest capitalized under paragraph
(a)(2)(iv)(A)(1) of this section is limited to 10 percent of the
original principal balance at the time the borrower entered repayment
under the Pay As You Earn repayment plan.
(2) After the amount of accrued interest reaches the limit described
in paragraph (a)(2)(iv)(B)(1) of this section, interest continues to
accrue, but is not capitalized while the borrower remains on the Pay As
You Earn repayment plan.
(v) If the borrower's monthly payment amount is not sufficient to
pay any of the principal due, the payment of that principal is postponed
until the borrower chooses to leave the Pay As You Earn repayment plan
or no longer has a partial financial hardship.
(vi) The repayment period for a borrower under the Pay As You Earn
repayment plan may be greater than 10 years.
(3) Payment application and prepayment. (i) The Secretary applies
any payment made under the Pay As You Earn repayment plan in the
following order:
(A) Accrued interest.
(B) Collection costs.
(C) Late charges.
(D) Loan principal.
(ii) The borrower may prepay all or part of a loan at any time
without penalty, as provided under Sec. 685.211(a)(2).
(iii) If the prepayment amount equals or exceeds a monthly payment
amount of $10.00 or more under the repayment schedule established for
the loan, the Secretary applies the prepayment consistent with the
requirements of Sec. 685.211(a)(3).
(iv) If the prepayment amount exceeds a monthly payment amount of
$0.00 under the repayment schedule established for the loan, the
Secretary applies the prepayment consistent with the requirements of
paragraph (a)(3)(i) of this section.
(4) Changes in the payment amount. (i) If a borrower no longer has a
partial financial hardship, the borrower may continue to make payments
under the Pay As You Earn repayment plan, but the Secretary recalculates
the borrower's monthly payment. The Secretary also recalculates the
monthly payment for a borrower who chooses to stop making income-
contingent payments. In either case, as a result of the recalculation--
(A) The maximum monthly amount that the Secretary requires the
borrower to repay is the amount the borrower would have paid under the
standard repayment plan based on a 10-year repayment period using the
amount of the borrower's eligible loans that was outstanding at the time
the borrower began repayment on the loans under the Pay As You Earn
repayment plan; and
(B) The borrower's repayment period based on the recalculated
payment amount may exceed 10 years.
(ii) A borrower who no longer wishes to repay under the Pay As You
Earn repayment plan may change to a different repayment plan in
accordance with Sec. 685.210(b).
(5) Eligibility documentation, verification, and notifications.
(i)(A) The Secretary determines whether a borrower has a partial
financial hardship to qualify for the Pay As You Earn repayment plan for
the year the borrower selects the plan and for each subsequent year that
the borrower remains on the plan. To make this determination, the
Secretary requires the borrower to provide documentation, acceptable to
the Secretary, of the borrower's AGI.
(B) If the borrower's AGI is not available, or if the Secretary
believes that the borrower's reported AGI does not reasonably reflect
the borrower's current income, the borrower must provide other
documentation to verify income.
(C) The borrower must annually certify the borrower's family size.
If the borrower fails to certify family size, the Secretary assumes a
family size of one for that year.
[[Page 236]]
(ii) After making a determination that a borrower has a partial
financial hardship to qualify for the Pay As You Earn repayment plan for
the year the borrower initially elects the plan and for each subsequent
year that the borrower has a partial financial hardship, the Secretary
sends the borrower a written notification that provides the borrower
with--
(A) The borrower's scheduled monthly payment amount, as calculated
under paragraph (a)(2) of this section, and the time period during which
this scheduled monthly payment amount will apply (annual payment
period);
(B) Information about the requirement for the borrower to annually
provide the information described in paragraph (a)(5)(i) of this
section, if the borrower chooses to remain on the Pay As You Earn
repayment plan after the initial year on the plan, and an explanation
that the borrower will be notified in advance of the date by which the
Secretary must receive this information;
(C) An explanation of the consequences, as described in paragraphs
(a)(5)(i)(C) and (a)(5)(vii) of this section, if the borrower does not
provide the required information; and
(D) Information about the borrower's option to request, at any time
during the borrower's current annual payment period, that the Secretary
recalculate the borrower's monthly payment amount if the borrower's
financial circumstances have changed and the income amount that was used
to calculate the borrower's current monthly payment no longer reflects
the borrower's current income. If the Secretary recalculates the
borrower's monthly payment amount based on the borrower's request, the
Secretary sends the borrower a written notification that includes the
information described in paragraphs (a)(5)(ii)(A) through (a)(5)(ii)(D)
of this section.
(iii) For each subsequent year that a borrower who currently has a
partial financial hardship remains on the Pay As You Earn repayment
plan, the Secretary notifies the borrower in writing of the requirements
in paragraph (a)(5)(i) of this section no later than 60 days and no
earlier than 90 days prior to the date specified in paragraph
(a)(5)(iii)(A) of this section. The notification provides the borrower
with--
(A) The date, no earlier than 35 days before the end of the
borrower's annual payment period, by which the Secretary must receive
all of the documentation described in paragraph (a)(5)(i) of this
section (annual deadline); and
(B) The consequences if the Secretary does not receive the
information within 10 days following the annual deadline specified in
the notice, including the borrower's new monthly payment amount as
determined under paragraph (a)(4)(i) of this section, the effective date
for the recalculated monthly payment amount, and the fact that unpaid
accrued interest will be capitalized at the end of the borrower's
current annual payment period in accordance with paragraph (a)(2)(iv) of
this section.
(iv) Each time the Secretary makes a determination that a borrower
no longer has a partial financial hardship for a subsequent year that
the borrower wishes to remain on the plan, the Secretary sends the
borrower a written notification that provides the borrower with--
(A) The borrower's recalculated monthly payment amount, as
determined in accordance with paragraph (a)(4)(i) of this section;
(B) An explanation that unpaid interest will be capitalized in
accordance with paragraph (a)(2)(iv) of this section; and
(C) Information about the borrower's option to request, at any time,
that the Secretary redetermine whether the borrower has a partial
financial hardship, if the borrower's financial circumstances have
changed and the income amount used to determine that the borrower no
longer has a partial financial hardship does not reflect the borrower's
current income, and an explanation that the borrower will be notified
annually of this option. If the Secretary determines that the borrower
again has a partial financial hardship, the Secretary recalculates the
borrower's monthly payment in accordance with paragraph (a)(2)(i) of
this section and sends the borrower a written notification that includes
the information described in paragraphs
[[Page 237]]
(a)(5)(ii)(A) through (a)(5)(ii)(D) of this section.
(v) For each subsequent year that a borrower who does not currently
have a partial financial hardship remains on the Pay As You Earn
repayment plan, the Secretary sends the borrower a written notification
that includes the information described in paragraph (a)(5)(iv)(C) of
this section.
(vi) If a borrower who is currently repaying under another repayment
plan selects the Pay As You Earn repayment plan but does not provide the
documentation described in paragraphs (a)(5)(i)(A) or (a)(5)(i)(B) of
this section, or if the Secretary determines that the borrower does not
have a partial financial hardship, the borrower remains on his or her
current repayment plan.
(vii) The Secretary designates the repayment option described in
paragraph (a)(4)(i) of this section if a borrower who is currently
repaying under the Pay As You Earn repayment plan remains on the plan
for a subsequent year but the Secretary does not receive the
documentation described in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of
this section within 10 days of the specified annual deadline, unless the
Secretary is able to determine the borrower's new monthly payment amount
before the end of the borrower's current annual payment period.
(viii) If the Secretary receives the documentation described in
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section within 10 days
of the specified annual deadline--
(A) The Secretary promptly determines the borrower's new scheduled
monthly payment amount and maintains the borrower's current scheduled
monthly payment amount until the new scheduled monthly payment amount is
determined.
(1) If the new monthly payment amount is less than the borrower's
previously calculated Pay As You Earn repayment plan monthly payment
amount, and the borrower made payments at the previously calculated
amount after the end of the most recent annual payment period, the
Secretary makes the appropriate adjustment to the borrower's account.
Notwithstanding the requirements of Sec. 685.211(a)(3), unless the
borrower requests otherwise, the Secretary applies the excess payment
amounts made after the end of the most recent annual payment period in
accordance with the requirements of Sec. 685.209(a)(3)(i).
(2) If the new monthly payment amount is equal to or greater than
the borrower's previously calculated Pay As You Earn repayment plan
monthly payment amount, and the borrower made payments at the previously
calculated payment amount after the end of the most recent annual
payment period, the Secretary does not make any adjustment to the
borrower's account.
(3) Any payments that the borrower continued to make at the
previously calculated payment amount after the end of the prior annual
payment period and before the new monthly payment amount is calculated
are considered to be qualifying payments for purposes of Sec. 685.219,
provided that the payments otherwise meet the requirements described in
Sec. 685.219(c)(1).
(B) The new annual payment period begins on the day after the end of
the most recent annual payment period.
(ix)(A) If the Secretary receives the documentation described in
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section more than 10
days after the specified annual deadline and the borrower's monthly
payment amount is recalculated in accordance with paragraph (a)(4)(i) of
this section, the Secretary grants forbearance with respect to payments
that are overdue or would be due at the time the new calculated Pay As
You Earn repayment plan monthly payment amount is determined, if the new
monthly payment amount is $0.00 or is less than the borrower's
previously calculated income-based monthly payment amount. Interest that
accrues during the portion of this forbearance period that covers
payments that are overdue after the end of the prior annual payment
period is not capitalized.
(B) Any payments that the borrower continued to make at the
previously calculated payment amount after the end of the prior annual
payment period and before the new monthly payment amount is calculated
are considered to be qualifying payments for purposes of Sec. 685.219,
provided that the payments
[[Page 238]]
otherwise meet the requirements described in Sec. 685.219(c)(1).
(6) Loan forgiveness. (i) To qualify for loan forgiveness after 20
years, a borrower must have participated in the Pay As You Earn
repayment plan and satisfied at least one of the following conditions
during that period:
(A) Made reduced monthly payments under a partial financial hardship
as provided in paragraph (a)(2)(i) or (a)(2)(ii) of this section,
including a monthly payment amount of $0.00, as provided under paragraph
(a)(2)(ii)(C) of this section.
(B) Made reduced monthly payments after the borrower no longer had a
partial financial hardship or stopped making income-contingent payments
as provided in paragraph (a)(4)(i) of this section.
(C) Made monthly payments under any repayment plan, that were not
less than the amount required under the Direct Loan standard repayment
plan described in Sec. 685.208(b) with a 10-year repayment period.
(D) Made monthly payments under the Direct Loan standard repayment
plan described in Sec. 685.208(b) for the amount of the borrower's loans
that were outstanding at the time the borrower first selected the Pay As
You Earn repayment plan.
(E) Made monthly payments under the income-contingent repayment plan
described in paragraph (b) of this section, the Revised Pay As You Earn
repayment plan described in paragraph (c) of this section, or the
income-based repayment plan described in Sec. 685.221, including a
calculated monthly payment amount of $0.00.
(F) Made monthly payments under the alternative repayment plan
described in paragraph (c)(4)(v) of this section prior to changing to a
repayment plan described under this section or Sec. 685.221;
(G) Received an economic hardship deferment on eligible Direct
Loans.
(ii) As provided under paragraph (a)(6)(v) of this section, the
Secretary cancels any outstanding balance of principal and accrued
interest on Direct loans for which the borrower qualifies for
forgiveness if the Secretary determines that--
(A) The borrower made monthly payments under one or more of the
repayment plans described in paragraph (a)(6)(i) of this section,
including a monthly payment amount of $0.00, as provided under paragraph
(a)(2)(ii)(C) of this section; and
(B)(1) The borrower made those monthly payments each year for a 20-
year period; or
(2) Through a combination of monthly payments and economic hardship
deferments, the borrower has made the equivalent of 20 years of
payments.
(iii) For a borrower who qualifies for the Pay As You Earn repayment
plan, the beginning date for the 20-year period is--
(A) If the borrower made payments under the income-contingent
repayment plan described in paragraph (b) of this section, the Revised
Pay As You Earn repayment plan described in paragraph (c) of this
section, or the income-based repayment plan described in Sec. 685.221,
the earliest date the borrower made a payment on the loan under one of
those plans at any time after October 1, 2007; or
(B) If the borrower did not make payments under the income-
contingent repayment plan described in paragraph (b) of this section,
the Revised Pay As You Earn repayment plan described in paragraph (c) of
this section, or the income-based repayment plan described in
Sec. 685.221--
(1) For a borrower who has an eligible Direct Consolidation Loan,
the date the borrower made a payment or received an economic hardship
deferment on that loan, before the date the borrower qualified for the
Pay As You Earn repayment plan. The beginning date is the date the
borrower made the payment or received the deferment after October 1,
2007;
(2) For a borrower who has one or more other eligible Direct Loans,
the date the borrower made a payment or received an economic hardship
deferment on that loan. The beginning date is the date the borrower made
that payment or received the deferment on that loan after October 1,
2007;
(3) For a borrower who did not make a payment or receive an economic
hardship deferment on the loan under
[[Page 239]]
paragraph (a)(6)(iii)(B)(1) or (a)(6)(iii)(B)(2) of this section, the
date the borrower made a payment on the loan under the Pay As You Earn
repayment plan;
(4) If the borrower consolidates his or her eligible loans, the date
the borrower made a payment on the Direct Consolidation Loan that met
the requirements of paragraph (a)(6)(i) of this section; or
(5) If the borrower did not make a payment or receive an economic
hardship deferment on the loan under paragraph (a)(6)(iii)(A) or
(a)(6)(iii)(B) of this section, the date the borrower made a payment on
the loan under the Pay As You Earn repayment plan.
(iv) Any payments made on a defaulted loan are not made under a
qualifying repayment plan and are not counted toward the 20-year
forgiveness period.
(v)(A) When the Secretary determines that a borrower has satisfied
the loan forgiveness requirements under paragraph (a)(6) of this section
on an eligible loan, the Secretary cancels the outstanding balance and
accrued interest on that loan. No later than six months prior to the
anticipated date that the borrower will meet the forgiveness
requirements, the Secretary sends the borrower a written notice that
includes--
(1) An explanation that the borrower is approaching the date that he
or she is expected to meet the requirements to receive loan forgiveness;
(2) A reminder that the borrower must continue to make the
borrower's scheduled monthly payments; and
(3) General information on the current treatment of the forgiveness
amount for tax purposes, and instructions for the borrower to contact
the Internal Revenue Service for more information.
(B) The Secretary determines when a borrower has met the loan
forgiveness requirements in paragraph (a)(6) of this section and does
not require the borrower to submit a request for loan forgiveness.
(C) After determining that a borrower has satisfied the loan
forgiveness requirements, the Secretary--
(1) Notifies the borrower that the borrower's obligation on the
loans is satisfied;
(2) Provides the borrower with the information described in
paragraph (a)(6)(v)(A)(3) of this section; and
(3) Returns to the sender any payment received on a loan after loan
forgiveness has been granted.
(b) Income-contingent repayment plan: The income-contingent
repayment (ICR) plan is an income-contingent repayment plan under which
a borrower's monthly payment amount is generally based on the total
amount of the borrower's Direct Loans, family size, and AGI.
(1) Repayment amount calculation. (i) The amount the borrower would
repay is based upon the borrower's Direct Loan debt when the borrower's
first loan enters repayment, and this basis for calculation does not
change unless the borrower obtains another Direct Loan or the borrower
and the borrower's spouse obtain approval to repay their loans jointly
under paragraph (b)(2)(ii) of this section. If the borrower obtains
another Direct Loan, the amount the borrower would repay is based on the
combined amounts of the loans when the last loan enters repayment. If
the borrower and the borrower's spouse repay the loans jointly, the
amount the borrowers would repay is based on both borrowers' Direct Loan
debts at the time they enter joint repayment.
(ii) The annual amount payable by a borrower under the ICR plan is
the lesser of--
(A) The amount the borrower would repay annually over 12 years using
standard amortization multiplied by an income percentage factor that
corresponds to the borrower's AGI as shown in the income percentage
factor table in a notice published annually by the Secretary in the
Federal Register; or
(B) 20 percent of discretionary income.
(iii)(A) For purposes of paragraph (b) of this section,
discretionary income is defined as a borrower's AGI minus the amount of
the poverty guideline, as defined in paragraph (b)(1)(iii)(B) of this
section, for the borrower's family size as defined in
Sec. 685.209(a)(1)(iv).
[[Page 240]]
(B) For purposes of paragraph (b) of this section, the term
``poverty guideline'' refers to the income categorized by State and
family size in the poverty guidelines published annually by the United
States Department of Health and Human Services pursuant to 42 U.S.C.
9902(2). If a borrower is not a resident of a State identified in the
poverty guidelines, the poverty line to be used for the borrower is the
poverty guideline (for the relevant family size) used for the 48
contiguous States.
(iv) For exact incomes not shown in the income percentage factor
table in the annual notice published by the Secretary, an income
percentage factor is calculated, based upon the intervals between the
incomes and income percentage factors shown on the table.
(v) Each year, the Secretary recalculates the borrower's annual
payment amount based on changes in the borrower's AGI, the variable
interest rate, the income percentage factors in the table in the annual
notice published by the Secretary, and updated HHS Poverty Guidelines
(if applicable).
(vi) If a borrower's monthly payment is calculated to be greater
than $0 but less than or equal to $5.00, the amount payable by the
borrower is $5.00.
(vii) For purposes of the annual recalculation described in
paragraph (b)(1)(v) of this section, after periods in which a borrower
makes payments that are less than interest accrued on the loan, the
payment amount is recalculated based upon unpaid accrued interest and
the highest outstanding principal loan amount (including amount
capitalized) calculated for that borrower while paying under the ICR
plan.
(viii) For each calendar year, the Secretary publishes in the
Federal Register a revised income percentage factor table reflecting
changes based on inflation. This revised table is developed by changing
each of the dollar amounts contained in the table by a percentage equal
to the estimated percentage changes in the Consumer Price Index (as
determined by the Secretary) between December 1995 and the December next
preceding the beginning of such calendar year.
(ix) Examples of the calculation of monthly repayment amounts and
tables that show monthly repayment amounts for borrowers at various
income and debt levels are included in the annual notice published by
the Secretary.
(x) At the beginning of the repayment period under the ICR plan, the
borrower must make monthly payments of the amount of interest that
accrues on the borrower's Direct Loan until the Secretary calculates the
borrower's monthly payment amount on the basis of the borrower's income.
(2) Treatment of married borrowers. (i)(A) For a married borrower
who files a joint Federal tax return with his or her spouse, the AGI for
both spouses is used to calculate the monthly payment amount under the
ICR plan.
(B) For a married borrower who files a Federal income tax return
separately from his or her spouse, only the borrower's AGI is used to
determine the monthly payment amount under the ICR plan.
(ii) Married borrowers may repay their loans jointly. The
outstanding balances on the loans of each borrower are added together to
determine the borrowers' payback rate under paragraph (b)(1) of this
section.
(iii) The amount of the payment applied to each borrower's debt is
the proportion of the payments that equals the same proportion as that
borrower's debt to the total outstanding balance, except that the
payment is credited toward outstanding interest on any loan before any
payment is credited toward principal.
(3) Other features of the ICR plan--(i) Alternative documentation of
income. If a borrower's AGI is not available or if, in the Secretary's
opinion, the borrower's reported AGI does not reasonably reflect the
borrower's current income, the Secretary may use other documentation of
income provided by the borrower to calculate the borrower's monthly
repayment amount.
(ii) Adjustments to repayment obligations. The Secretary may
determine that special circumstances, such as a loss of employment by
the borrower or the borrower's spouse, warrant an adjustment to the
borrower's repayment obligations.
[[Page 241]]
(iii) Repayment period. (A) The maximum repayment period under the
ICR plan is 25 years.
(B) The repayment period includes--
(1) Periods in which the borrower makes payments under the ICR plan
on loans that are not in default;
(2) Periods in which the borrower makes reduced monthly payments
under the income-based repayment plan or a recalculated reduced monthly
payment after the borrower no longer has a partial financial hardship or
stops making income-based payments, as provided in
Sec. 685.221(d)(1)(i);
(3) Periods in which the borrower made monthly payments under the
Pay As You Earn repayment plan or the Revised Pay As You Earn repayment
plan;
(4) Periods in which the borrower made monthly payments under the
alternative repayment plan described in paragraph (c)(4)(v) of this
section prior to changing to a repayment plan described under this
section or Sec. 685.221;
(5) Periods in which the borrower made monthly payments under the
standard repayment plan after leaving the income-based repayment plan as
provided in Sec. 685.221(d)(2);
(6) Periods in which the borrower makes payments under the standard
repayment plan described in Sec. 685.208(b);
(7) For borrowers who entered repayment before October 1, 2007, and
if the repayment period is not more than 12 years, periods in which the
borrower makes monthly payments under the extended repayment plans
described in Sec. 685.208(d) and (e), or the standard repayment plan
described in Sec. 685.208(c);
(8) Periods after October 1, 2007, in which the borrower makes
monthly payments under any other repayment plan that are not less than
the amount required under the standard repayment plan described in
Sec. 685.208(b); or
(9) Periods of economic hardship deferment.
(C) If a borrower repays more than one loan under the ICR plan, a
separate repayment period for each loan begins when that loan enters
repayment.
(D) If a borrower has not repaid a loan in full at the end of the
25-year repayment period under the ICR plan, the Secretary cancels the
outstanding balance and accrued interest on that loan. No later than six
months prior to the anticipated date that the borrower will meet the
forgiveness requirements, the Secretary sends the borrower a written
notification that includes--
(1) An explanation that the borrower is approaching the date that he
or she is expected to meet the requirements to receive loan forgiveness;
(2) A reminder that the borrower must continue to make the
borrower's scheduled monthly payments; and
(3) General information on the current treatment of the forgiveness
amount for tax purposes, and instructions for the borrower to contact
the Internal Revenue Service for more information.
(E) The Secretary determines when a borrower has met the loan
forgiveness requirements under paragraph (b)(3)(iii)(D) of this section
and does not require the borrower to submit a request for loan
forgiveness. After determining that a borrower has satisfied the loan
forgiveness requirements, the Secretary--
(1) Notifies the borrower that the borrower's obligation on the
loans is satisfied;
(2) Provides the information described in paragraph
(b)(3)(iii)(D)(3) of this section; and
(3) Returns to the sender any payment received on a loan after loan
forgiveness has been granted.
(iv) Limitation on capitalization of interest. If the amount of a
borrower's monthly payment is less than the accrued interest, the unpaid
interest is capitalized until the outstanding principal amount is 10
percent greater than the original principal amount. After the
outstanding principal amount is 10 percent greater than the original
amount, interest continues to accrue but is not capitalized. For
purposes of this paragraph, the original amount is the amount owed by
the borrower when the borrower enters repayment.
(v) Notification of terms and conditions. When a borrower elects or
is required by the Secretary to repay a loan under the ICR plan, and for
each subsequent year that the borrower remains on the plan, the
Secretary sends the borrower a written notification that provides the
[[Page 242]]
terms and conditions of the plan, including--
(A) The borrower's scheduled monthly payment amount as calculated
under paragraph (b)(1) or (b)(3)(vi)(D) of this section, as applicable,
and the time period during which this scheduled monthly payment will
apply (annual payment period);
(B) Information about the requirement for the borrower to annually
provide the information described in paragraph (b)(3)(vi)(A) of this
section, if the borrower chooses to remain on the ICR plan after the
initial year on the plan, and an explanation that the borrower will be
notified in advance of the date by which the Secretary must receive the
information;
(C) That if the borrower believes that special circumstances warrant
an adjustment to the borrower's repayment obligations, as described in
paragraph (b)(3)(ii) of this section, the borrower may contact the
Secretary at any time during the borrower's current annual payment
period and obtain the Secretary's determination as to whether an
adjustment is appropriate; and
(D) An explanation of the consequences, as described in paragraph
(b)(3)(vi)(D) of this section, if the borrower does not provide the
required information.
(vi) Documentation of income and certification of family size. (A)
For the initial year that a borrower selects the ICR plan and for each
subsequent year that the borrower remains on the plan, the borrower
must--
(1) Provide to the Secretary, for purposes of calculating a monthly
repayment amount and servicing and collecting the borrower's loan,
acceptable documentation, as determined by the Secretary, of the
borrower's AGI or alternative documentation of income in accordance with
paragraph (b)(3)(i) of this section; and
(2) Certify the borrower's family size. If the borrower fails to
certify family size, the Secretary assumes a family size of one for the
year.
(B) For each subsequent year that a borrower remains on the ICR
plan, the Secretary notifies the borrower in writing of the requirements
described in paragraph (b)(3)(vi)(A) of this section no later than 60
days and no earlier than 90 days prior to the date specified in
paragraph (b)(3)(vi)(B)(1) of this section. The notification provides
the borrower with--
(1) The date, no earlier than 35 days before the end of the
borrower's annual payment period, by which the Secretary must receive
the documentation described in paragraph (b)(3)(vi)(A) of this section
(annual deadline); and
(2) The consequences if the Secretary does not receive the
information within 10 days following the annual deadline specified in
the notice, including the borrower's new monthly payment amount as
determined under paragraph (b)(3)(vi)(D) of this section, and the
effective date for the recalculated monthly payment amount.
(C) The Secretary designates the standard repayment plan for a
borrower who initially selects the ICR plan but does not comply with the
requirement in paragraph (b)(3)(vi)(A)(1) of this section.
(D) If, during a subsequent year that a borrower remains on the ICR
plan, the Secretary does not receive the documentation described in
paragraph (b)(3)(vi)(A)(1) of this section within 10 days of the
specified annual deadline, the Secretary recalculates the borrower's
required monthly payment amount, unless the Secretary is able to
determine the borrower's new monthly payment amount before the end of
the borrower's current annual payment period. The maximum recalculated
monthly amount the Secretary requires the borrower to repay is the
amount the borrower would have paid under the standard repayment plan
based on a 10-year repayment period using the amount of the borrower's
loans that was outstanding at the time the borrower began repayment
under the ICR plan. The repayment period based on the recalculated
payment may exceed 10 years.
(E) If the Secretary receives the documentation described in
paragraph (b)(3)(vi)(A)(1) of this section within 10 days of the
specified annual deadline--
(1) The Secretary promptly determines the borrower's new scheduled
monthly payment amount and maintains the borrower's current scheduled
monthly payment amount until the
[[Page 243]]
new scheduled monthly payment amount is determined.
(i) If the new calculated monthly payment amount is less than the
borrower's previously calculated monthly payment amount, and the
borrower made payments at the previously calculated amount after the end
of the most recent annual payment period, the Secretary makes the
appropriate adjustment to the borrower's account. Notwithstanding
Sec. 685.211(a)(3), the Secretary applies the excess payment amounts
made after the end of the most recent annual payment period in
accordance with the requirements of Sec. 685.211(a)(1), unless the
borrower requests otherwise.
(ii) If the new monthly payment amount is equal to or greater than
the borrower's previously calculated monthly payment amount, and the
borrower made payments at the previously calculated payment amount after
the end of the most recent annual payment period, the Secretary does not
make any adjustment to the borrower's account.
(iii) Any payments the borrower continued to make at the previously
calculated payment amount after the end of the prior annual payment
period and before the new monthly payment amount is calculated are
considered to be qualifying payments for purposes of Sec. 685.219,
provided that the payments otherwise meet the requirements described in
Sec. 685.219(c)(1).
(2) The new annual payment period begins on the day after the end of
the most recent annual payment period.
(F)(1) If the Secretary receives the documentation described in
paragraph (b)(3)(vi)(A)(1) of this section more than 10 days after the
specified annual deadline and the borrower's monthly payment amount is
recalculated in accordance with paragraph (b)(3)(vi)(D) of this section,
the Secretary grants forbearance with respect to payments that are
overdue or would be due at the time the new calculated monthly payment
amount is determined, if the new monthly payment amount is $0.00 or is
less than the borrower's previously calculated monthly payment amount.
Interest that accrues during the portion of this forbearance period that
covers payments that are overdue after the end of the prior annual
payment period is not capitalized.
(2) Any payments that the borrower continued to make at the
previously calculated payment amount after the end of the prior annual
payment period and before the new monthly payment amount is calculated
are considered to be qualifying payments for purposes of Sec. 685.219,
provided that the payments otherwise meet the requirements described in
Sec. 685.219(c)(1).
(G) If a borrower defaults and the Secretary designates the ICR plan
for the borrower but the borrower fails to comply with the requirements
in paragraph (b)(3)(vi)(A) of this section, the Secretary mails a notice
to the borrower establishing a repayment schedule for the borrower.
(c) Revised Pay As You Earn repayment plan. The Revised Pay As You
Earn repayment plan (REPAYE plan) is an income-contingent repayment plan
under which a borrower's monthly payment amount is based on the
borrower's AGI and family size.
(1) Definitions. As used in this paragraph (c)--
(i) Adjusted gross income (AGI) means the borrower's adjusted gross
income as reported to the Internal Revenue Service. For a married
borrower filing jointly, AGI includes both the borrower's and spouse's
income and is used to calculate the monthly payment amount. For a
married borrower filing separately, the AGI for each spouse is combined
to calculate the monthly payment amount, unless the borrower certifies,
on a form approved by the Secretary, that the borrower is--
(A) Separated from his or her spouse; or
(B) Unable to reasonably access the income information of his or her
spouse.
(ii) Eligible loan, for purposes of adjusting a borrower's monthly
payment amount in accordance with paragraph (c)(2)(ii) of this section,
means any outstanding loan made to a borrower under the Direct Loan
Program or the FFEL Program except for a defaulted loan, a Direct PLUS
Loan or Federal PLUS Loan made to a parent borrower, or a Direct
Consolidation Loan or Federal Consolidation Loan that repaid a
[[Page 244]]
Direct PLUS Loan or Federal PLUS Loan made to a parent borrower;
(iii) Family size means the number that is determined by counting
the borrower, the borrower's spouse, and the borrower's children,
including unborn children who will be born during the year the borrower
certifies family size, if the children receive more than half their
support from the borrower. Family size does not include the borrower's
spouse if the borrower is separated from his or her spouse, or if the
borrower is filing separately and is unable to reasonably access the
spouse's income information. A borrower's family size includes other
individuals if, at the time the borrower certifies family size, the
other individuals--
(A) Live with the borrower; and
(B) Receive more than half their support from the borrower and will
continue to receive this support from the borrower for the year the
borrower certifies family size. Support includes money, gifts, loans,
housing, food, clothes, car, medical and dental care, and payment of
college costs; and
(iv) Poverty guideline refers to the income categorized by State and
family size in the poverty guidelines published annually by the United
States Department of Health and Human Services pursuant to 42 U.S.C.
9902(2). If a borrower is not a resident of a State identified in the
poverty guidelines, the poverty guideline to be used for the borrower is
the poverty guideline (for the relevant family size) used for the 48
contiguous States.
(2) Terms of the Revised Pay As You Earn repayment plan. (i) The
aggregate monthly loan payments of a borrower who selects the REPAYE
plan are limited to no more than 10 percent of the amount by which the
borrower's AGI exceeds 150 percent of the poverty guideline applicable
to the borrower's family size, divided by 12, unless the borrower's
monthly payment amount is adjusted in accordance with paragraph
(c)(4)(vi)(E) of this section.
(ii) The Secretary adjusts the calculated monthly payment if--
(A) Except for borrowers provided for in paragraph (c)(2)(ii)(B) of
this section, the borrower's eligible loans are not solely Direct Loans,
in which case the Secretary determines the borrower's adjusted monthly
payment by multiplying the calculated payment by the percentage of the
total outstanding principal amount of the borrower's eligible loans that
are Direct Loans;
(B) Except in the case of a married borrower filing separately whose
spouse's income is excluded in accordance with paragraph (c)(1)(i)(A) or
(B) of this section, both the borrower and borrower's spouse have
eligible loans, in which case the Secretary determines--
(1) Each borrower's percentage of the couple's total eligible loan
debt;
(2) The adjusted monthly payment for each borrower by multiplying
the calculated payment by the percentage determined in paragraph
(c)(2)(ii)(B)(1) of this section; and
(3) If the borrower's loans are held by multiple holders, the
borrower's adjusted monthly Direct Loan payment by multiplying the
payment determined in paragraph (c)(2)(ii)(B)(2) of this section by the
percentage of the total outstanding principal amount of the borrower's
eligible loans that are Direct Loans;
(C) The calculated amount under paragraph (c)(2)(i) or (c)(2)(ii)(A)
or (B) of this section is less than $5.00, in which case the borrower's
monthly payment is $0.00; or
(D) The calculated amount under paragraph (c)(2)(i) or (c)(2)(ii)(A)
or (B) of this section is equal to or greater than $5.00 but less than
$10.00, in which case the borrower's monthly payment is $10.00.
(iii) If the borrower's monthly payment amount is not sufficient to
pay the accrued interest on the borrower's loan--
(A) Except as provided in paragraph (c)(2)(iii)(B) of this section,
for a Direct Subsidized Loan or the subsidized portion of a Direct
Consolidation Loan, the Secretary does not charge the borrower the
remaining accrued interest for a period not to exceed three consecutive
years from the established repayment period start date on that loan
under the REPAYE plan. Following this three-year period, the Secretary
charges the borrower 50 percent of the remaining accrued interest on the
Direct Subsidized Loan or the subsidized portion of a Direct
Consolidation Loan.
[[Page 245]]
(B) For a Direct Unsubsidized Loan, a Direct PLUS Loan made to a
graduate or professional student, the unsubsidized portion of a Direct
Consolidation Loan, or for a Direct Subsidized Loan or the subsidized
portion of a Direct Consolidation Loan for which the borrower has become
responsible for accruing interest in accordance with Sec. 685.200(f)(3),
the Secretary charges the borrower 50 percent of the remaining accrued
interest.
(C) The three-year period described in paragraph (c)(2)(iii)(A) of
this section--
(1) Does not include any period during which the borrower receives
an economic hardship deferment;
(2) Includes any prior period of repayment under the income-based
repayment plan or the Pay As You Earn repayment plan; and
(3) For a Direct Consolidation Loan, includes any period in which
the underlying loans were repaid under the income-based repayment plan
or the Pay As You Earn repayment plan.
(iv) Any unpaid accrued interest is capitalized at the time a
borrower leaves the REPAYE plan.
(v) If the borrower's monthly payment amount is not sufficient to
pay any of the principal due, the payment of that principal is postponed
until the borrower leaves the REPAYE plan.
(vi) A borrower who no longer wishes to repay under the REPAYE plan
may change to a different repayment plan in accordance with
Sec. 685.210(b). A borrower who changes to a different repayment plan in
accordance with this paragraph or paragraph (c)(4)(vi)(C) of this
section may return to the REPAYE plan pursuant to the requirements in
paragraphs (c)(4)(vi)(D) and (E) of this section.
(3) Payment application and prepayment. (i) The Secretary applies
any payment made under the REPAYE plan in the following order:
(A) Accrued interest.
(B) Collection costs.
(C) Late charges.
(D) Loan principal.
(ii) The borrower may prepay all or part of a loan at any time
without penalty, as provided under Sec. 685.211(a)(2).
(iii) If the prepayment amount equals or exceeds a monthly payment
amount of $10.00 or more under the repayment schedule established for
the loan, the Secretary applies the prepayment consistent with the
requirements of Sec. 685.211(a)(3).
(iv) If the prepayment amount exceeds a monthly payment amount of
$0.00 under the repayment schedule established for the loan, the
Secretary applies the prepayment consistent with the requirements of
paragraph (c)(3)(i) of this section.
(4) Eligibility documentation, verification, and notifications.
(i)(A) For the year the borrower initially selects the REPAYE plan and
for each subsequent year that the borrower remains on the plan, the
Secretary determines the borrower's monthly payment amount for that
year. To make this determination, the Secretary requires the borrower to
provide documentation, acceptable to the Secretary, of the borrower's
AGI.
(B) If the borrower's AGI is not available, or if the Secretary
believes that the borrower's reported AGI does not reasonably reflect
the borrower's current income, the borrower must provide other
documentation to verify income.
(C) Unless otherwise directed by the Secretary, the borrower must
annually certify the borrower's family size. If the borrower fails to
certify family size, the Secretary assumes a family size of one for that
year.
(ii) After making the determination described in paragraph
(c)(4)(i)(A) of this section for the initial year that the borrower
selects the REPAYE plan and for each subsequent year that the borrower
remains on the plan, the Secretary sends the borrower a written
notification that provides the borrower with--
(A) The borrower's scheduled monthly payment amount, as calculated
under paragraph (c)(2) of this section, and the time period during which
this scheduled monthly payment amount will apply (annual payment
period);
(B) Information about the requirement for the borrower to annually
provide the information described in paragraph (c)(4)(i) of this
section, if the borrower chooses to remain on the REPAYE plan after the
initial year on the plan, and an explanation that the
[[Page 246]]
borrower will be notified in advance of the date by which the Secretary
must receive this information;
(C) An explanation of the consequences, as described in paragraphs
(c)(4)(i)(C) and (c)(4)(v) and (vi) of this section, if the borrower
does not provide the required information; and
(D) Information about the borrower's option to request, at any time
during the borrower's current annual payment period, that the Secretary
recalculate the borrower's monthly payment amount if the borrower's
financial circumstances have changed and the income amount that was used
to calculate the borrower's current monthly payment no longer reflects
the borrower's current income. If the Secretary recalculates the
borrower's monthly payment amount based on the borrower's request, the
Secretary sends the borrower a written notification that includes the
information described in paragraphs (c)(4)(ii)(A) through (D) of this
section.
(iii) For each subsequent year that a borrower remains on the REPAYE
plan, the Secretary notifies the borrower in writing of the requirements
in paragraph (c)(4)(i) of this section no later than 60 days and no
earlier than 90 days prior to the date specified in paragraph
(c)(4)(iii)(A) of this section. The notification provides the borrower
with--
(A) The date, no earlier than 35 days before the end of the
borrower's annual payment period, by which the Secretary must receive
all of the documentation described in paragraph (c)(4)(i) of this
section (annual deadline); and
(B) The consequences if the Secretary does not receive the
information within 10 days following the annual deadline specified in
the notice, as described in paragraphs (c)(2)(iv) and (c)(4)(v) of this
section.
(iv) If a borrower who is currently repaying under another repayment
plan selects the REPAYE plan but does not provide the documentation
described in paragraph (c)(4)(i)(A) or (B) of this section, the borrower
remains on his or her current repayment plan.
(v) Except as provided in paragraph (c)(4)(vii) of this section, if
a borrower who is currently repaying under the REPAYE plan remains on
the plan for a subsequent year but the Secretary does not receive the
documentation described in paragraph (c)(4)(i)(A) or (B) of this section
within 10 days of the specified annual deadline, the Secretary removes
the borrower from the REPAYE plan and places the borrower on an
alternative repayment plan under which the borrower's required monthly
payment is the amount necessary to repay the borrower's loan in full
within the earlier of--
(A) Ten years from the date the borrower begins repayment under the
alternative repayment plan; or
(B) The ending date of the 20- or 25-year period as described in
paragraphs (c)(5)(i) and (ii) of this section.
(vi) If the Secretary places the borrower on an alternative
repayment plan in accordance with paragraph (c)(4)(v) of this section,
the Secretary sends the borrower a written notification containing the
borrower's new monthly payment amount and informing the borrower that--
(A) The borrower has been placed on an alternative repayment plan;
(B) The borrower's monthly payment amount has been recalculated in
accordance with paragraph (c)(4)(v) of this section;
(C) The borrower may change to another repayment plan in accordance
with Sec. 685.210(b);
(D) The borrower may return to the REPAYE plan if he or she provides
the documentation, as described in paragraph (c)(4)(i)(A) or (B) of this
section, necessary for the Secretary to calculate the borrower's current
REPAYE plan monthly payment amount and the monthly amount the borrower
would have been required to pay under the REPAYE plan during the period
when the borrower was on the alternative repayment plan or any other
repayment plan;
(E) If the Secretary determines that the total amount of the
payments the borrower was required to make while on the alternative
repayment plan or any other repayment plan is less than the total amount
the borrower would have been required to make under the REPAYE plan
during that period, the Secretary will adjust the borrower's monthly
REPAYE plan payment
[[Page 247]]
amount to ensure that the difference between the two amounts is paid in
full by the end of the 20- or 25-year period described in paragraphs
(c)(5)(i) and (ii) of this section;
(F) If the borrower returns to the REPAYE plan or changes to the Pay
As You Earn repayment plan described in paragraph (a) of this section,
the income-contingent repayment plan described in paragraph (b) of this
section, or the income-based repayment plan described in Sec. 685.221,
any payments that the borrower made under the alternative repayment plan
after the borrower was removed from the REPAYE plan will count toward
forgiveness under the REPAYE plan or the other repayment plans under
paragraph (a) or (b) of this section or Sec. 685.221; and
(G) Payments made under the alternative repayment plan described in
paragraph (c)(4)(v) of this section will not count toward public service
loan forgiveness under Sec. 685.219.
(vii) The Secretary does not take the action described in paragraph
(c)(4)(v) of this section if the Secretary receives the documentation
described in paragraph (c)(4)(i)(A) or (B) of this section more than 10
days after the specified annual deadline, but is able to determine the
borrower's new monthly payment amount before the end of the borrower's
current annual payment period.
(viii) If the Secretary receives the documentation described in
paragraph (c)(4)(i)(A) or (B) of this section within 10 days of the
specified annual deadline--
(A) The Secretary promptly determines the borrower's new scheduled
monthly payment amount and maintains the borrower's current scheduled
monthly payment amount until the new scheduled monthly payment amount is
determined.
(1) If the new monthly payment amount is less than the borrower's
previously calculated REPAYE plan monthly payment amount, and the
borrower made payments at the previously calculated amount after the end
of the most recent annual payment period, the Secretary makes the
appropriate adjustment to the borrower's account. Notwithstanding the
requirements of Sec. 685.211(a)(3), unless the borrower requests
otherwise, the Secretary applies the excess payment amounts made after
the end of the most recent annual payment period in accordance with the
requirements of paragraph (c)(3)(i) of this section.
(2) If the new monthly payment amount is equal to or greater than
the borrower's previously calculated REPAYE plan monthly payment amount,
and the borrower made payments at the previously calculated payment
amount after the end of the most recent annual payment period, the
Secretary does not make any adjustment to the borrower's account.
(3) Any payments that the borrower continued to make at the
previously calculated payment amount after the end of the prior annual
payment period and before the new monthly payment amount is calculated
are considered to be qualifying payments for purposes of Sec. 685.219,
provided that the payments otherwise meet the requirements described in
Sec. 685.219(c)(1).
(B) The new annual payment period begins on the day after the end of
the most recent annual payment period.
(5) Loan forgiveness. (i) A borrower who meets the requirements
specified in paragraph (c)(5)(iii) of this section may qualify for loan
forgiveness after 20 or 25 years, as determined in accordance with
paragraph (c)(5)(ii) of this section.
(ii)(A) A borrower whose loans being repaid under the REPAYE plan
include only loans the borrower received as an undergraduate student or
a consolidation loan that repaid only loans the borrower received as an
undergraduate student may qualify for forgiveness after 20 years.
(B) A borrower whose loans being repaid under the REPAYE plan
include a loan the borrower received as a graduate or professional
student or a consolidation loan that repaid a loan received as a
graduate or professional student may qualify for forgiveness after 25
years.
(iii) The Secretary cancels any remaining outstanding balance of
principal and accrued interest on a borrower's Direct Loans that are
being repaid under the REPAYE plan after--
[[Page 248]]
(A) The borrower has made the equivalent of 240 or 300, as
applicable, qualifying monthly payments as defined in paragraph
(c)(5)(iv) of this section; and
(B) Twenty or 25 years, as applicable, have elapsed, beginning on
the date determined in accordance with paragraph (c)(5)(v) of this
section.
(iv) For the purpose of paragraph (c)(5)(iii)(A) of this section, a
qualifying monthly payment is--
(A) A monthly payment under the REPAYE plan, including a monthly
payment amount of $0.00, as provided under paragraph (c)(2)(ii)(C) of
this section;
(B) A monthly payment under the Pay As You Earn repayment plan
described in paragraph (a) of this section, the income-contingent
repayment plan described in paragraph (b) of this section, or the
income-based repayment plan described in Sec. 685.221, including a
monthly payment amount of $0.00;
(C) A monthly payment made under--
(1) The Direct Loan standard repayment plan described in
Sec. 685.208(b);
(2) The alternative repayment plan described in paragraphs (c)(4)(v)
of this section prior to changing to a repayment plan described in
paragraph (a), (b), or (c) of this section or Sec. 685.221;
(3) Any other Direct Loan repayment plan, if the amount of the
payment was not less than the amount required under the Direct Loan
standard repayment plan described in Sec. 685.208(b); or
(D) A month during which the borrower was not required to make a
payment due to receiving an economic hardship deferment on his or her
eligible Direct Loans.
(v) For a borrower who makes payments under the REPAYE plan, the
beginning date for the 20-year or 25-year repayment period is--
(A) If the borrower made payments under the Pay As You Earn
repayment plan described in paragraph (a) of this section, the income-
contingent repayment plan described in paragraph (b) of this section, or
the income-based repayment plan described in Sec. 685.221, the earliest
date the borrower made a payment on the loan under one of those plans;
or
(B) If the borrower did not make payments under the Pay As You Earn
repayment plan described in paragraph (a) of this section, the income-
contingent repayment plan described in paragraph (b) of this section, or
the income-based repayment plan described in Sec. 685.221--
(1) For a borrower who has an eligible Direct Consolidation Loan,
the date the borrower made a qualifying monthly payment on the
consolidation loan, before the date the borrower began repayment under
the REPAYE plan;
(2) For a borrower who has one or more other eligible Direct Loans,
the date the borrower made a qualifying monthly payment on that loan,
before the date the borrower began repayment under the REPAYE plan;
(3) For a borrower who did not make a qualifying monthly payment on
the loan under paragraph (c)(5)(v)(B)(1) or (2) of this section, the
date the borrower made a payment on the loan under the REPAYE plan;
(4) If the borrower consolidates his or her eligible loans, the date
the borrower made a qualifying monthly payment on the Direct
Consolidation Loan; or
(5) If the borrower did not make a qualifying monthly payment on the
loan under paragraph (c)(5)(v)(A) or (B) of this section, the date the
borrower made a payment on the loan under the REPAYE plan.
(vi) Any payments made on a defaulted loan are not qualifying
monthly payments and are not counted toward the 20-year or 25-year
forgiveness period.
(vii)(A) When the Secretary determines that a borrower has satisfied
the loan forgiveness requirements under paragraph (c)(5) of this section
on an eligible loan, the Secretary cancels the outstanding balance and
accrued interest on that loan. No later than six months prior to the
anticipated date that the borrower will meet the forgiveness
requirements, the Secretary sends the borrower a written notice that
includes--
(1) An explanation that the borrower is approaching the date that he
or she is expected to meet the requirements to receive loan forgiveness;
(2) A reminder that the borrower must continue to make the
borrower's scheduled monthly payments; and
[[Page 249]]
(3) General information on the current treatment of the forgiveness
amount for tax purposes, and instructions for the borrower to contact
the Internal Revenue Service for more information.
(B) The Secretary determines when a borrower has met the loan
forgiveness requirements in paragraph (c)(5) of this section and does
not require the borrower to submit a request for loan forgiveness.
(C) After determining that a borrower has satisfied the loan
forgiveness requirements, the Secretary--
(1) Notifies the borrower that the borrower's obligation on the
loans is satisfied;
(2) Provides the borrower with the information described in
paragraph (c)(5)(vii)(A)(3) of this section; and
(3) Returns to the sender any payment received on a loan after loan
forgiveness has been granted.
(Approved by the Office of Management and Budget under control number
1845-0021)
(Authority: 20 U.S.C. 1087a et seq.)
[77 FR 66136, Nov. 1, 2012, as amended at 80 FR 67238, Oct. 30, 2015; 81
FR 76081, Nov. 1, 2016]
Sec. 685.210 Choice of repayment plan.
(a) Initial selection of a repayment plan. (1) Before a Direct Loan
enters into repayment, the Secretary provides the borrower a description
of the available repayment plans and requests the borrower to select
one. A borrower may select a repayment plan before the loan enters
repayment by notifying the Secretary of the borrower's selection in
writing.
(2) If a borrower does not select a repayment plan, the Secretary
designates the standard repayment plan described in Sec. 685.208(b) or
(c) for the borrower, as applicable.
(b) Changing repayment plans. (1) A borrower may change repayment
plans at any time after the loan has entered repayment by notifying the
Secretary. However, a borrower who is repaying a defaulted loan under an
income-contingent repayment plan or the income-based repayment plan in
accordance with Sec. 685.211(d)(3)(ii), or who is repaying a Direct
Consolidation Loan under the income-contingent repayment plan or the
income-based repayment plan in accordance with
Sec. 685.220(d)(1)(ii)(A)(3) may not change to another repayment plan
unless--
(i) The borrower was required to and did make a payment under the
income-contingent repayment plan or income-based repayment plan in each
of the prior three months; or
(ii) The borrower was not required to make payments but made three
reasonable and affordable payments in each of the prior three months;
and
(iii) The borrower makes and the Secretary approves a request to
change plans.
(2)(i) A borrower may not change to a repayment plan that has a
maximum repayment period of less than the number of years the loan has
already been in repayment, except that a borrower may change to either
the income-contingent or income-based repayment plan at any time.
(ii) If a borrower changes repayment plans, the repayment period is
the period provided under the borrower's new repayment plan, calculated
from the date the loan initially entered repayment. However, if a
borrower changes to the income-contingent repayment plan under
Sec. 685.209(a), the income-contingent repayment plan under
Sec. 685.209(b), the income-contingent repayment plan under
Sec. 685.209(c), or the income-based repayment plan under Sec. 685.221,
the repayment period is calculated as described in
Sec. 685.209(a)(6)(iii), Sec. 685.209(b)(3)(iii), Sec. 685.209(c)(5)(v),
or Sec. 685.221(f)(3), respectively.
(Authority: 20 U.S.C. 1087a et seq.)
[59 FR 61690, Dec. 1, 1994, as amended at 65 FR 65629, Nov. 1, 2000; 68
FR 75430, Dec. 31, 2003; 73 FR 63256, Oct. 23, 2008; 77 FR 66142, Nov.
1, 2012; 78 FR 65833, Nov. 1, 2013; 80 FR 67242, Oct. 30, 2015]
Sec. 685.211 Miscellaneous repayment provisions.
(a) Payment application and prepayment. (1) Except as provided for
the income-contingent repayment plan under Sec. 685.209(a)(3) or the
income-based repayment plan under Sec. 685.221(c)(1), the Secretary
applies any payment first to any accrued charges and collection costs,
then to any outstanding interest, and then to outstanding principal.
[[Page 250]]
(2) A borrower may prepay all or part of a loan at any time without
penalty. If a borrower pays any amount in excess of the amount due, the
excess amount is a prepayment.
(3) If a prepayment equals or exceeds the monthly repayment amount
under the borrower's repayment plan, the Secretary--
(i) Applies the prepaid amount according to paragraph (a)(1) of this
section;
(ii) Advances the due date of the next payment unless the borrower
requests otherwise; and
(iii) Notifies the borrower of any revised due date for the next
payment.
(4) If a prepayment is less than the monthly repayment amount, the
Secretary applies the prepayment according to paragraph (a)(1) of this
section.
(b) Repayment incentives. To encourage on-time repayment, the
Secretary may reduce the interest rate for a borrower who repays a loan
under a system or on a schedule that meets requirements specified by the
Secretary.
(c) Refunds and returns of title IV, HEA program funds from schools.
The Secretary applies any refund or return of title IV, HEA program
funds that the Secretary receives from a school under Sec. 668.22
against the borrower's outstanding principal and notifies the borrower
of the refund or return.
(d) Default--(1) Acceleration. If a borrower defaults on a Direct
Loan, the entire unpaid balance and accrued interest are immediately due
and payable.
(2) Collection charges. If a borrower defaults on a Direct Loan, the
Secretary assesses collection charges in accordance with
Sec. 685.202(e).
(3) Collection of a defaulted loan. (i) The Secretary may take any
action authorized by law to collect a defaulted Direct Loan including,
but not limited to, filing a lawsuit against the borrower, reporting the
default to nationwide consumer reporting agencies, requesting the
Internal Revenue Service to offset the borrower's Federal income tax
refund, and garnishing the borrower's wages.
(ii) If a borrower defaults on a Direct Subsidized Loan, a Direct
Unsubsidized Loan, a Direct Consolidation Loan, or a student Direct PLUS
Loan, the Secretary may designate the income-contingent repayment plan
or the income-based repayment plan for the borrower.
(e) Ineligible borrowers. (1) The Secretary determines that a
borrower is ineligible if, at the time the loan was made and without the
school's or the Secretary's knowledge, the borrower (or the student on
whose behalf a parent borrowed) provided false or erroneous information,
has been convicted of, or has pled nolo contendere or guilty to, a crime
involving fraud in obtaining title IV, HEA program funds, or took
actions that caused the borrower or student--
(i) To receive a loan for which the borrower is wholly or partially
ineligible;
(ii) To receive interest benefits for which the borrower was
ineligible; or
(iii) To receive loan proceeds for a period of enrollment for which
the borrower was not eligible.
(2) If the Secretary makes the determination described in paragraph
(e)(1) of this section, the Secretary sends an ineligible borrower a
demand letter that requires the borrower to repay some or all of a loan,
as appropriate. The demand letter requires that within 30 days from the
date the letter is mailed, the borrower repay any principal amount for
which the borrower is ineligible and any accrued interest, including
interest subsidized by the Secretary, through the previous quarter.
(3) If a borrower fails to comply with the demand letter described
in paragraph (e)(2) of this section, the borrower is in default on the
entire loan.
(4) A borrower may not consolidate a loan under Sec. 685.220 for
which the borrower is wholly or partially ineligible.
(f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan,
except for a loan on which a judgment has been obtained, is
rehabilitated if the borrower makes 9 voluntary, reasonable and
affordable monthly payments within 20 days of the due date during 10
consecutive months. The Secretary determines the amount of a borrower's
reasonable and affordable payment on the basis of a borrower's total
financial circumstances.
(i) The Secretary initially considers the borrower's reasonable and
affordable payment amount to be an amount
[[Page 251]]
equal to 15 percent of the amount by which the borrower's AGI exceeds
150 percent of the poverty guideline amount applicable to the borrower's
family size and State, divided by 12, except that if this amount is less
than $5, the borrower's monthly rehabilitation payment is $5.
(ii) The Secretary may calculate the payment amount based on
information provided orally by the borrower or the borrower's
representative and provide the borrower with a rehabilitation agreement
using that amount. The Secretary requires the borrower to provide
documentation to confirm the borrower's AGI and family size. If the
borrower does not provide the Secretary with any documentation requested
by the Secretary to calculate or confirm the reasonable and affordable
payment amount within a reasonable time deadline set by the Secretary,
the rehabilitation agreement provided is null and void.
(iii) A reasonable and affordable payment amount is not--
(A) A required minimum loan payment amount (e.g., $50) if the
Secretary determines that a smaller amount is reasonable and affordable;
(B) A percentage of the borrower's total loan balance; or
(C) Based on other criteria unrelated to the borrower's total
financial circumstances.
(iv) Within 15 business days of the Secretary's determination of the
borrower's loan rehabilitation payment amount, the Secretary provides
the borrower with a written rehabilitation agreement which includes the
borrower's reasonable and affordable payment amount, a prominent
statement that the borrower may object orally or in writing to the
reasonable and affordable payment amount with the method and timeframe
for raising such an objection, a statement that the rehabilitation is
null and void if the borrower does not provide the documentation
required to calculate the reasonable and affordable payment amount, and
an explanation of any other terms and conditions applicable to the
required series of payments that must be made. To accept the agreement,
the borrower must sign and return the agreement or accept the agreement
electronically under a process provided by the Secretary. The Secretary
does not impose any other conditions unrelated to the amount or timing
of the rehabilitation payments in the rehabilitation agreement. The
written rehabilitation agreement informs the borrower of the effects of
having the loans rehabilitated (e.g., removal of the record of default
from the borrower's credit history and return to normal repayment).
(2) The Secretary provides the borrower with a written statement
confirming the borrower's reasonable and affordable payment amount, as
determined by the Secretary, and explaining any other terms and
conditions applicable to the required series of payments that must be
made before the borrower's account can be rehabilitated. The statement
informs the borrower that the borrower may object to the terms and
conditions of the rehabilitation agreement, and explains the method and
timeframe for objecting to the terms and conditions of the
rehabilitation agreement.
(3) If the borrower objects to the monthly payment amount determined
under paragraph (f)(1) of this section, the Secretary recalculates the
payment based solely on information provided on a form approved by the
Secretary and, if requested, supporting documentation from the borrower
and other sources, and considers--
(i) The borrower's, and if applicable, the spouse's current
disposable income, including public assistance payments, and other
income received by the borrower and the spouse, such as welfare
benefits, Social Security benefits, Supplemental Security Income, and
workers' compensation. Spousal income is not considered if the spouse
does not contribute to the borrower's household income;
(ii) Family size as defined in Sec. 685.221(a)(3); and
(iii) Reasonable and necessary expenses, which include--
(A) Food;
(B) Housing;
(C) Utilities;
(D) Basic communication expenses;
(E) Necessary medical and dental costs;
(F) Necessary insurance costs;
(G) Transportation costs;
[[Page 252]]
(H) Dependent care and other work-related expenses;
(I) Legally required child and spousal support;
(J) Other title IV and non-title IV student loan payments; and
(K) Other expenses approved by the Secretary.
(4) The Secretary provides the borrower with a new written
rehabilitation agreement confirming the borrower's recalculated
reasonable and affordable payment amount. To accept the agreement, the
borrower must sign and return the agreement or accept the agreement
electronically under a process provided by the Secretary.
(5) The Secretary includes any payment made under paragraph (1) of
the definition of ``satisfactory repayment arrangement'' in
Sec. 685.102(b) in determining whether the 9 out of 10 payments required
under paragraph (f)(1) of this section have been made.
(6) A borrower may request that the monthly payment amount be
adjusted due to a change in the borrower's total financial circumstances
only upon providing the documentation specified in paragraph (f)(3) of
this section.
(7) During the rehabilitation period, the Secretary limits contact
with the borrower on the loan being rehabilitated to collection
activities that are required by law or regulation and to communications
that support the rehabilitation.
(8) If a defaulted loan is rehabilitated, the Secretary instructs
any consumer reporting agency to which the default was reported to
remove the default from the borrower's credit history.
(9) A defaulted Direct Loan on which a judgment has been obtained
may not be rehabilitated.
(10) A Direct Loan obtained by fraud for which the borrower has been
convicted of, or has pl